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sergey welcome back to real vision thank you for having me again its a pleasure to have you here always uh youve been on real vision a number of times weve talked through chain link were here to talk today about chain link 2.0 but before we get into that lets do a quick review for people who may not have seen our earlier conversations uh lets talk a little bit about what chain link is about hybrid smart contracts and about oracles give us a working definition of what those terms are why theyre significant and why they feature prominently in the chain link platform sure so so hybrid smart contracts are the more advanced version of smart contracts that are able to interface and affect the real world in terms of outside systems outside data outside payments and when i say outside i mean outside of a blockchain so if smart contracts started out as a way to make tokens because that was kind of the fundamental feature they had in order to pay minors and then folks figured out how to make voting schemes in the form of dows on top of those tokens right so the initial two features of blockchains were really tokenization which was great for bringing in a lot of value into the industry and then dow voting which was great for creating some kind of governance um or collective decision-making structure um often around those tokens the next stage is all of that as well as connectivity to external systems right and even though smart contracts are called smart they are actually unable to speak with external data or affect things in the world outside of a blockchain and so what a hybrid smart contract is is the more advanced realization of a smart contract in that it can not only be about tokens or voting but it can actually be about insurance policies uh in the real world about weather or market events with derivatives or lending protocols in relation to market data or any number of other use cases that really have to be built in a hybrid smart contract form and the hybrid smart contract format really has two equal parts to it it has the smart contract code itself that lives on chain in various blockchains and then there is the oracle right and the oracle is the basically decentralized consensus method and system that guarantees inputs into the contract code right so when youre doing smart contracts when youre making them youre basically trying to achieve hyper reliable automation youre basically trying to go from a world of probabilistic um just trust me promises to a world of cryptographically guaranteed outcomes that are going to happen under all circumstances and all circumstances means whatever you know the economy decides or whatever governments decide or whatever your counterparty decides those those outcomes will still happen in a cryptographically guaranteed way and so smart contract code guarantees that to the degree that the on-chain state is is going to change in a certain predictable way but then you also have to guarantee what controls that state right what controls the change on chain and that is what oracles and oracle networks and decentralized oracle networks do is they provide a level of consensus and validation and essentially a form of trust minimized off-chain computation that guarantees that the on-chain code will actually be triggered correctly because if its triggered incorrectly then it largely loses its value right you you dont want a highly reliable piece of code thats very easy to manipulate through an external system you actually want end-to-end security that guarantees you highly deterministic hyper-reliable outcomes in this smart contract format and for that in relation to external systems in relation to weather events for insurance or market data for derivatives or you know delivery related events for global trade you need connectivity with external systems but you need that connectivity to be guaranteed in a highly reliable way both in terms of it consistently being live so giving you liveness and in terms of accuracy so making sure that the triggering event for the outcome unchained is properly validated sergey for people who may not have the technical background lets walk through a couple of examples a couple of case studies to explain precisely the points you just made with real world examples sure so so theres really you know two or three categories one category is defy d5 is decentralized financial products which basically means the types of financial products youre used to except they brought on a blockchain so how those are composed is that theres a piece of code on a blockchain that guarantees that that financial product will have to pay you interest at a certain rate as long as the market data about the value of the thing that the lending product is about is accurate right so you have a guarantee that you will receive a certain um rate of return and the only other factor going into that is the actual market value of of the thing that that isnt the lending protocol and thats where you need an oracle mechanism which validates the data about the value of the thing in the decentralized financial product thats thats one example an another example which is which is now kind of taking form is uh and one that im very interested in is decentralized crop insurance so so this is the ability to monitor the world the worlds weather events through the many different data sources that prove what the weather is and pay out an insurance policy to anybody anywhere on the planet that has an internet connection regardless of an insurance company right so you can basically codify um a farmers relationship to risk in the form of an on-chain insurance contract and then you need a system thats going to reliably prove that the weather events that the insurance contract is about actually happened or didnt happen and thats where oracle networks come in is they validate and prove that there was actually a drought or there was actually a storm or there was actually a heat wave and then they allowed that proof to trigger the the outcomes defined in the contract right so you need the contract to be highly reliable and secure which is what blockchains do and then you need the proof and the triggers and all the systems that control that to be highly reliable in what they do and and thats the role that oracle networks play sergey let me let me just jump in here because i think this is such an important point ive always thought that the crop insurance metaphor or use case is a really good one for understanding smart contracts and oracles so you could imagine a system where a farmer whether its in zimbabwe or indiana has a particular insurance contract with an insurance company that basically reads if there is more than you know five inches of rain in the 12-hour period they get flood insurance compensation now under the current model you have an insurance company you have the person who takes out the policy and then you have to kind of prove to the insurance company that this event did happen in the smart contract world this all takes place in a sort of in on chain in a way that becomes irrevocable immutable so that neither party can either decide not to pay a premium or decide not to pay out a claim once something is validated now the key point of this and where oracles are so significant is that there is third party data in the form of for example noaa weather satellite data national weather service logs all of these things that are created by third parties and so the question becomes how do you tie together the smart contract and the information from the outside world and so crop insurance in many ways i think defy is often a little bit abstract for people particularly if theyre not in the space but crop insurance is something that feels very concrete its something that people can get their head around it i think its such an interesting use case uh for chain link for other oracles and for the smart contract space yeah i i think i think its a very meaningful use case because it interestingly enough has as a few properties that usually arent in blockchain world so the first one is it doesnt have anything to do with tokens right it doesnt have anything to do with the value of a token rising or falling or changing or anything like that secondly it actually helps people manage business related risk which is why a lot of financial products were actually invented many futures contracts many financial products werent invented for speculative reasons they were invented so that business owners could manage away risk and continue to operate their business even if there was a drought even if there was too much rain or not enough rain or any number of other factors and then the third thing that i think is fascinating is that there are already great great teams and companies like our bowl and others that are already doing this right so we already have decentralized crop insurance being built which i think is only going to become more more and more relevant with the extreme weather events that are happening now due to various you know climate change results and and various other you know exogenous factors kind of so i i think that this proves that blockchains and smart contracts when combined with external data in the form of a hybrid smart contract can do much more than tokenization they can do much more than act as a speculative instrument for somebody um which is fine and you know has brought a lot of you know value into our industry but i think its time for our industry to go beyond that and then the second thing that i think is quite impactful is that anybody with an internet connection as you mentioned in zimbabwe or indiana or anywhere can actually interface with this agreement without relying on an insurance company and so the fascinating thing is that historically the way that you would decide who you want to do an agreement with would be based on a brand and there would be a very nice logo and the logo would say hey ive been around for over 100 years you should trust me in regards to um you know this type of contract and thats fine and that works very that works very well and its worked very well for hundreds of years but were now actually moving to a world where theres a piece of code in a irrevocable immutable ungamable system that doesnt need a brand attached to it because the code guarantees certain outcomes to you regardless of of even how you access the code right and so you could access the code through any number of different interfaces or applications um from your phone or from your computer and youd fundamentally be accessing the same risk management system the same code as hundreds of thousands or millions of others people or farmers or or users of that of that risk management um code and so thats um thats the other you know i think truly fascinating thing is that anybody with an internet connection can now get crop insurance regardless of their local legal system and regardless of you know their trust or faith in an insurance company yeah thats really in many ways the revolutionary part about this if youre listening to it and you think okay well its an incremental improvement on the way insurance works i would say that no thats actually not the case uh insurance in some ways works pretty well right now if you have your car stolen uh you go and when you you know we watch television we see these large insurance companies spend an incredible amount of money to build up their brand exactly as you were saying so that you know that this is a company that has uh deep reliable uh financial resources and if theres an event or a claim that needs to be paid out that theyll be able to do it but this idea that you can have things that exist on chain in an unalterable way in a way that cant be gamed in a way that brand in a way that reputation is not the dependent factor for understanding whether or not you are going to get paid really is a massive philosophical shift in the way that we think not just about insurance or financial products but about contracts and about business and about commerce much more generally yes i think its i think its a massive shift in how people relate both to each other and to institutions so instead of instead of relying on a kind of what i call paper guarantees or just trust us promises youre now relying on physics-based cryptography-based code that cant function in any other way than the way that you expect it to function and and all of this i think becomes more and more important and valuable both as the unique benefits of it start being made available and as existing systems that people think give them certain guarantees but then dont start to fail right so one of the biggest influxes ive seen uh about peoples interest in hybrid smart contracts and into d5 was actually after robin hood when people kind of had this um collective realization that their relationship with robin hood and their relationship with their own assets and their relationship with trade fi and the trading environment that they were involved in was not what they thought and so if if that had happened 10 or 15 years ago you know everyone would just switch from one trade five provider to another trade five provider that had a slightly better logo or a slightly better track record with basically the same fundamental guarantees of just trust us but now for the first time in history people have an alternative in that they have cryptographically guaranteed control over their assets cryptographically guaranteed outcomes in relation to what can and cant happen with their assets once they put them into a certain financial product or protocol or defy um you know app or whatever you want to call it and and thats a monumental difference right because before that the choice was go from one trust us brand to another trust us brand and just hope that everythings gonna be better and now the choice is you know i dont need to engage in this trust us itll be fine dont worry about it kind of um you know storyline i can just opt out and go into into a world of deterministic cryptographically guaranteed mathematically um kind of foundational outcomes and and that i think is the big difference that some people clearly understand and some people dont understand largely because they believe they already have it right so if you engage in this simple exercise of well what level of control do you think you have over the money in your bank account or what level of control do you think you have over the money in your brokerage or what level of control do you think you have over your insurance policies i pretty much can guarantee you that 90 plus of people will be off by something like an order of magnitude like they will be way off they will think oh i can just withdraw my money immediately or the bank can never not give me my money or the insurance company has to pay me or the trade fi environment has to execute my trades so the the real the really funny thing is that people think they already have this and therefore when theyre offered a better version of of how the world works theyre kind of confused right because theyve theyve been convinced so well that they already have it and its only when those types of systems fail and fail in a very public kind of collective consciousness you know impacting manner that they go ahead and say well wow you know turns out i dont it turns out the bank can just arbitrarily decide to only give me 66 euros per day at their discretion wow thats you know thats an interesting thing i learned and and thats what people in places like greece learned a few years ago right where all of a sudden they could only get 66 euros per day because because of a brief credit crisis that thankfully didnt turn into something more but um thats i think really at the core of this and as that veneer falls away i think sooner or later everybodys going to realize that blockchains and hybrid smart contracts and oracles and all of these systems give them the world that they want that they thought they had and in reality thats thats better for society right so thats thats the fascinating thing is when people ask like are smart contracts and blockchains better for society i mean is transparency in how the global financial system and you having control over your own financial economic life instead of other large companies that can just do decide to do whatever they want to you and millions of other people like you is is that better for society yeah if thats better for society than smart contracts are a hundred percent better for society in in pretty much every single case yeah you know its so interesting for those of us who covered the global financial crisis 2007 2008 2009 uh one of the questions that constantly came up was this question of as you say transparency who owned collateral what were the conditions on that collateral had it been rehypothecated these are all questions that were extremely difficult to figure out and as you would say a brand based world as i might say a paper world but this is a very different paradigm and the potential for smart contracts in general to solve these problems is incredibly great yeah what i would say the way to think about this even from the point of view to 2008 financial crisis which might be a topic that many people are more familiar with is that this infrastructure forces transparency you you cannot make a financial product or a financial agreement on this infrastructure that does not force certain levels of inherent transparency so for example if this exam if this technology was at the state it is now back in 2005 six and seven then what would have likely happened is that every mortgage application would have been its own individual smart contract it would have had a multitude of different pieces of data appended to it such as the persons credit score their financial history any number of other other items and then all of those individual smart contracts would be packaged into a larger basket that anybody could research right so that means the average um retail investor purchaser of rmbs or cmbs or whatever um could could go and look in detail at exactly what each individual mortgage holder had how much money not how much money but like what their financial state status was what their credit score was this was information that only a handful of people had it was either cdo managers or other people within banks that were deeply ingrained in managing this type of risk or it was the few people in the financial system that took the time and effort to really do painstaking pretty much almost in-person diligence on all these risks now if you had a system that forced every single mortgage application to be issued in this transparent way and for it to then be appended with more and more information as time went on in a transparent way and all of that information was accessible to the global um you know financial community that i im pretty much positive that that would not have allowed the boom to be as big and that would have allowed us to avoid a bust that was that big and and thats fundamentally what systems like blockchains and hybrid smart contracts will do is that they will create um a transparency about financial products and contracts that allow these weird booms and busts to become much more softened which is which is much better for society because society usually picks up the bill for those and it also allows people to manage their own risk better on an individual basis which which is particularly important for those people that dont have large groups of financial analysts or lawyers to help them manage risk but they still need to manage risk right so you you should be able to be in an emerging economy and be able to get crop insurance thats highly reliable with without you having to take on um the burden of evaluating a bunch of things or relying on a broken local legal system and and that in and of itself will will change how certain emerging economies work yeah one of the things that i most appreciate and like about your view of this from a philosophical perspective is some of the improvements that it can bring elsewhere in the world particularly in emerging markets in places where they dont have a robust system of for example rule of law property rights and advanced legal system that this technology not just chain link but the entire sort of suite of protocols and technologies being developed have the potential to make the world a better fairer and more equal place yeah i i completely a agree with you in that in fact that is actually the the goal that we have here um in our work on chain link is we want to eliminate all of these um both information asymmetries and access the contract asymmetries and all these kind of global financial problems in a way that levels the playing field for um for everybody by by making information available by enforcing the way contracts work correctly by creating a notion of definitive truth that is very hard for people to break or game and therefore no matter whether youre a big party in the contract or whether youre a smaller party you you you can still be treated fairly because theres a way to determine what actually happened in a definitive truth type of model and and so i i think that a lot of the things that are broken about how the global financial system works global trade works um ad networks work gaming works theres a lot of things that are broken because there are fundamental trust issues and theres a lack of definitive truth to prove what happened if if were able to generate definitive truth and if were able to eliminate trust issues with the help of blockchains we we kind of enter a new world where everybody is on a much more level playing field both between emerging and developed markets but also in individual transactions between you know large parties and small parties so if youre a very large party with a lot of resources and you would traditionally be able to threaten to sue or threaten to just not pay the contract you cant do that anymore because the contract is going to forcibly take the the the resources that youre supposed to pay and its going to make them paid probably because it was holding them in trust as a impartial decentralized third party basically right and and so this is also another huge change where if youre very very big right now you have a bunch of levers at your disposal to manipulate markets to manipulate your relationship with smaller counterparties and with a system that works in a deterministic cryptographically guaranteed way those levers they go away because because now the contract decides what happens not you and not not a court somewhere but the code that both you and the counterparty committed to which really is a much fairer um way for for the world to operate its also a huge paradigm shift the idea that a trusted third party an escrow agent uh that kind of thing a third party custody bank effectively goes away and the trusted third party becomes the network itself and if the network itself is the trusted third party it creates a great deal more equal access to it and a great deal more transparency for all parties involved i think all the people that offer those services today should really just begin to to provide access to this infrastructure as a better version of their current systems so thats what i think they should all be thinking about beyond that i think the really powerful thing is that just like in open source software you have many many iterations of something like linux or any number of other pieces of software here you will have an open set of contracts that have been iterated on thousands of times and are available to everybody right so whereas traditionally you would need to go to a really high high cost law firm to do a certain type of transaction and you would need to pay them a lot of money to structure the the details of your transaction and and you would need to spend you know thousands tens of thousands maybe hundreds of thousands of dollars youll now arrive at a place where you have a piece of code that guarantees a certain set of outcomes in that transaction that piece of code is available to the poorest contracting party and to the richest contracting party and regardless of their wealth or power they both have to abide by the contract in an equal degree and all of that is accessible to anybody with an internet connection and so all the places where you dont have a good system of contracts because the legal system for example is corrupt or just fundamentally doesnt work you you suddenly have them leapfrog into an entirely new way of collaborating both locally and internationally such that if somebody wanted to make foreign direct investment into that geography they no longer need to rely on the local legal system they can now codify everything in a smart contract and rely on that as the system that enforces their property rights and and their ownership of different assets or or their ability to you know interface with certain land holders or or whatever so i i think its uh i think its a monumental shift and its going to be very similar to the shift of the internet right where the internet definitely changed the way the world works for for people in more developed economies but in emerging markets it literally took people from not having a local library to having the same access to information that i have right so if you have an internet connection and a 50 android phone you have wikipedia you have youtube you have all of these amazing resources where you can watch amazing you know stanford videos you can watch you can read books you can see the authors explain the books um and just think about what kind of change that is from an environment where people didnt even have paper books or didnt even have the ability to communicate to now being able to learn at the same level of quality as me and other people in in more advanced places that are like down the road from stanford and and this is this is the same thing that this is going to do but for their economic life so their economic life is not in very good shape because their local economy cant maintain a stable local currency or their local economy cant give them an insurance company or their local economy cant give them a savings account and now the internet can give that to them the internet can just go ahead and give them a stable currency of some kind an insurance contract of some kind a bank account of some kind and this is going to change their life as much or more as their ability to access information because now theyll theyll have a way to manage risk theyll have a way to sell their goods internationally without middlemen taking the vast majority of the profits theyll have ways of attracting foreign direct investment without people having to rely on a broken local legal system i mean itll just change the way that people um interact with each other in in this globalized world with without having to rely on broken legal systems i i think i think thats really the big difference is i dont need a legal system to guarantee me certain contractual outcomes if i have a piece of cryptographically guaranteed code that effectively does that even better and and and thats the reality that that were arriving at yeah you know one of the cliches thats used to describe the blockchain world the distributed ledger technology world the smart contract world and it is a cliche but i think its a useful one or a helpful one is to think about this space as the internet for trust and for value if you think about the democratization of information that the internet provided this world that were discussing now really is a sense internet 2.0 for trust and value the idea that you can provably demonstrate certain properties using cryptographic mathematical properties properties of physics and the idea that you can use it to exchange value in a secure way without a trusted third-party intermediary for me in many ways thats really the core idea that were discussing here yeah yeah that sounds right ive heard people see the internet of contracts in the past um and everything you just said is is exactly right at the end of the day the trust relationships that people have between them and financial institutions insurance companies global trading partners sources of foreign direct investment you know whatever other other resources those work in this trust us paper-based brand guaranteed manner and thats obviously a huge improvement from from what there was thousands of years ago where people couldnt even give a letter of credit and they had to bring all their gold with them right they had to bring a big chest of gold and they couldnt give a piece of paper to say hey i have a chest of gold you know obviously where we are now is a massive improvement from that but um this is an equally large improvement from from where we are now where where all of a sudden you you you just have certain guarantees and and once again the the problem i think is that people think they already have this thats thats why people thats why the vast majority of people dont see this as an important question um its because they believe they already have these guarantees because the brands and the systems of today have done such a good job in convincing them of that and and this is also why where a lot of the places where those brand-based guarantees fail is where you see a lot of adoption of crypto right so in in south america in in in in places where basically certain aspects of the local legal system or the ability to generate a reliable currency havent panned out the way people had wanted you see more and more adoption of this because people have a very sharp need for a reliable economic mechanism whether thats around insurance whether thats around savings accounts whether thats around the local currency whatever it is you know people spend a lot of their time generating economic value that they put into these systems and the point at which those systems you know dont function the way they expect i mean one way to think about it is that the majority of peoples lives suddenly becomes devalued or suddenly becomes unpredictable right like all the time people spend working suddenly and then getting some kind of assets and putting them somewhere suddenly is at risk thats a very serious risk that i think um everyone wants to manage um and i think these systems are going to be the way that thats managed over over the coming years and decades yeah its also going to be interesting to see what new use cases we can come up with in addition to doing some of the things that are already done in a brand based world not as well particularly in places in the world where they dont have a stable currency or access uh to a you know a a fair and well developed legal system property rights all of those things to see all the innumerable new use cases that are going to come out of it thats just fascinating to me and im curious about what some of your thoughts are for not just what smart contracts can do or hybrid smart contracts can do better than the existing system but new use cases that we havent yet even considered i think the the the nuance around new use cases is is that youll actually see a combination of different systems making more and more advanced um hybrid smart contracts so what i think youre actually going to see is youre going to see the global insurance industry in this internet of contracts and then youre going to see the global derivatives industry in in in the same internet of contracts and then youre going to see equity ownership in in that internet of contracts and then youre going to see carbon credits as as an as as a type of agreement also in that one internet of contracts even if its across different chains right and and then what youre going to start seeing is people very creatively combining these different aspects of trust and value and internet of contracts agreements together with each other right so youre going to start seeing really interesting combinations of i am going to hedge my risk using a derivative protocol um such as synthetics im going to get some kind of yield for something from something like ave um im going to apply that to some kind of carbon credit scheme so that my carbon credits maintain their value over time under you know extra y set of conditions and im going to be able to build all of that simply by getting a developer possibly internally to my team and company to compose all the different agreements or there might be firms that do that for you the way that banks compose more advanced agreements now the the agreements that i think thatll be important um will continue to be defy so decentralized financial products crop insurance and various forms of insurance have very large trust and data proof issues that i think all of these systems are already beginning to solve then gaming is a large global industry that has a surprisingly large amount of trust issues where either the game is unfair or the ownership of items in the game suddenly is made unfair because their value is changed or reduced or you know who knows what happens um i think those are the three largest industries beyond that i see interesting things in ad networks and the trust issues there where nobody can really prove um to each other to a sufficient degree that an ad was served or that it was viewed and that theres a lot theres a lot of fraud there the general way to think about it is where are their trust issues and where is there fraud that makes it either prohibitively costly or impossible to do certain types of agreements and and once you were to eliminate those trust issues and the possibility of fraud what would be possible as far as those agreements and then if you layer on the dimension of well lets imagine we eliminate fraud and trust issues in the derivatives industry in the carbon credits industry in the equities industry and in the global you know weather insurance industry what happens when people can compose more advanced contracts across all three or four of those categories with once trust issues are sufficiently resolved um thats when i think you start seeing truly mind-boggling things by these kind of superpower driven smart contract engineers that that can basically make agreements that centralized entities would take months to build and months to make because they would need to do all the due diligence on all of their counterparties and all of the contractual details and all the ways everything can go wrong but if you have a bunch of systems that you you know the universe of what can go wrong and that universe is sufficiently small and those building blocks can all be connected together then you can you can just rapidly build amazing um configurations of of of agreement across all of these industries which is when i think youll really see the advanced nature of this go go to a whole new level yeah and just to give some sense of the size of these markets um the derivatives the notional value meaning the total outstanding dollar value it can be netted out but the total value of these of the derivatives industry is estimated to be over one quadrillion dollars thats like 10 to the 15th its a massive massive number so the scope the scale the size the impact of what were talking about here is potentially potentially enormous yeah yeah i mean were were in the very early innings here right if people are looking at 50 or 60 or 100 billion in the d5 industry and theyre looking at that and saying wow those are big numbers in my personal opinion thats nothing thats the very thats not even the tip of the iceberg thats like the mist going off the tip of the iceberg the the amount of value that can be in these protocols just by virtue of the amount of value in crypto currency forms formats is um you know three or four percent right so if theres anywhere from one to 1.5 trillion in cryptocurrency which is which is the format that can be put into d5 products and you have 50 to 60 to 100 billion youre looking at single digit percentages of what can be in d5 today and then if you look at that one to 1.5 trillion dollar number and you compare it to the global equities markets the globals capital the global capital markets the global derivatives industry i mean the the percentages are are are basically minuscule and so even even if a very small percentage of the worlds financial contracts migrates into this format um youre going to see another zero or two added to um whats in d5 right now and and thatll thatll be a conservative um outcome for for for what would happen here in my opinion that that is if all of this has value right thats thats if all of these systems actually provide this transparency private key based control and you know superior yield that theyre doing now and theyre able to do that at scale over time so if these systems actually do what theyre supposed to do and the existing world systems continue to fail people in ways that they find surprising then you know that migration in my opinion is pretty much assured um so so thats thats how i view it so when you mention that if sergey what are the risks here what could conceivably go wrong particularly from a technological infrastructure perspective with the public key infrastructure with the smart contracts themselves with the environment in which the smart contracts are run well like any technology theres a million different risks with with any technology right with drones with ai with quantum computing with any number of technologies theres a number of factors new research new new issues fundamentally what all of this really depends on is encryption holding so modern day encryption schemes that secure our email communications that secure our messaging communications our video communications maintaining their integrity right so you you fundamentally need encryption to work for private key and public key based systems to function which is what all of these blockchains um are right they all use private key security schemes to sign transactions and broadcast them and so on so theres all kinds of threats in relation to quantum computing um into all kinds of other factors now those threats dont seem to be evolving particularly quickly which suggests that the ability for all of the existing blockchain systems to you know to have a window to adapt um is there and and thats fundamentally how i think most threats should be viewed is that you know threats involve at a certain pace and that creates a window um in which you can adapt right in which you can adapt the system you can continually improve it you can you can add a new um encryption scheme thats resistant to quantum quantum computing or any number of other things and its its really more so the speed at which various um attack vectors or threats develop and the speed at which our industry is able to evolve and improve in order to avoid them so thats thats really probably the bigger the bigger factor um if that makes sense yeah talking of evolution and improvement uh we were going to discuss today chain link 2.0 but we got so caught uh and i think this incredibly interesting and compelling big picture view uh that you have of this world as kind of a philosopher of the space in addition to being a technologist but im curious tell us a little bit about where chain link is right now whats happening with chain link 2.0 i know you recently published the white paper for channeling 2.0 tell us what chain link is why the upgrade was required and what it makes it so significant sure so chain link is an open source platform for creating decentralized oracle networks the centralized oracle networks are basically unique and distinct computational environments that have a singular usually have a singular purpose a single purpose as an example would be providing a single market price or providing or or a different decentralized oracle network would provide the weather data about a single geographic location so each decentralized oracle network thats generated within the chain link kind of framework and open source platform model provides its own distinct decentralized service so the the way to think about um how applications are built and and and how our industry really works at an architectural level is is you kind of you you kind of have three three categories of of of activity you have on chain activity which is the contract code itself then you have off chain activity and the off chain activity is the worlds data market events weather events um computing systems back-end systems and banks whatever any anything thats happening outside of a blockchain and then you also have what we call the decentralized meta layer which sits between the on-chain activity and the off-chain activity in this decentralized media you basically have um at this point hundreds of individual decentralized oracle networks providing hundreds of distinct services and what chain link 2.0 is about is expanding that to thousands or maybe even tens of thousands of distinct decentralized oracle networks that provide their own distinct decentralized service now these decentralized services so far in the in the chain link format have largely been focused on data right so early on the chain link network and the centralized oracle networks running within chain link um have been providing market data have been providing some weather data have been providing different individual pieces of data and that has actually enabled d5 to grow to where it is today right so if you look at the rate at which chain link oracle networks provide data and the rate at which new d5 markets are launched youre going to see a very heavy correlation where the rate at which were able to provide data is often the rate at which many new financial products are able are able to be built in this new exciting format what chain link 2.0 is about is expanding what the world of decentralized services can do ha and that has two very important outcomes one outcome is the expansion of what the centralized oracle networks do generally so one example is while before oracle networks were providing data now they can actually provide computation thats significant because whereas before your choice was either highly trust minimized highly reliable computation in a blockchain or highly unreliable highly centralized untrustworthy computation in the central server you now have a middle road where you can do trust minimized computation of the kinds that werent possible on a blockchain and of the kinds that couldnt be made trustworthy by a central server whats trust minimized computation for people who arent familiar with that for with the technology and the terminology can you give us an example sure so the way that blockchains achieve highly reliable trust minimize computation is they have tens or hundreds or thousands of nodes doing the same computation and then storing the final result and all of those nodes have some dimension of proof that they are distinct and separate individual either entities or persons that are not colluding with each other so you basically have tens or hundreds or thousands of individual entities coming to the same conclusion um arriving at whats called consensus what the centralized oracle networks do is they arrive at consensus but they arrive about it on on topics other than what a blockchain does right so a blockchain will arrive at consensus about smart contract code and transactions between private keys and blocks full of transactions that is what a blockchain um is is is made to arrive at consensus about what decentralized oracle networks arrive at consensus about is either the provision of external data and validating across many different independent nodes that that data is actually that way and basically proving that the world actually works that way and now with chain link 2.0 youre seeing much much more advanced decentralized oracle networks that can not only get the data but they can do some level of computation on that data that you didnt want to put in a blockchain for cost privacy or scalability reasons now just to be very clear were completely fine with all computation eventually moving into a blockchain but that will require blockchains to acquire certain privacy guarantees scalability guarantees and cost efficiency guarantees that they dont have now and may not have for years and what we are doing in chain link 2.0 case is creating a decentralized meta layer an abstraction layer between blockchains and everything else so this means that if you want to define what a smart contract does in relation to a piece of data in relation to a computation that you cant do on a blockchain in relation to another chain in relation to all three of those things in unison being coordinated and orchestrated to make a new type of hybrid smart contract all of that coordination um and and actually the computation of that will have to happen somewhere and it will be it is already starting to happen in more and more advanced use cases in chain link 2.0 decentralized oracle networks and then the collection of all these decentralized oracle networks is what we call the decentralized meta layer which which is just a very very large sweden large collection of different oracle networks that can be clicked together to compose those more advanced contracts so for example um when you look at how people build built uber right they had the core uber code that they wrote as developers and then they reached out to twilio to send text messages to to the user they received the users location from google maps and then they paid the driver through stripe and it was only through the usage of these other services that the core code written by the uber engineers themselves was able to achieve its final goal and value for users now that um set of services is is what chain link 2.0 and the decentralized meta layer is about so if you wanted to build decentralized uber or decentralized global trade applications or decentralized insurance you would write your core code in one or maybe two different blockchains you would then have to orchestrate the retrieving of data the payment to users in different environments the retrieval of other data to prove that you know something actually happened and all of that orchestration has to happen um somewhere and where its where its already starting to happen is in these more advanced decentralized oracle networks that provide this uh decentralized middle layer so so basically everything that you want to do with a blockchain that the blockchain itself doesnt do is doable through this abstraction layer and that includes the input of data the output of commands from blockchains into enterprise systems the communication with other chains the interaction with with various other computing systems and the proving of all of that in a consensus-driven decentralized manner and and so the goal here is not to replace blockchains it is to complement them to enable these more and more advanced hybrid smart contracts such that if you want to build a more advanced more useful smart contract you have the blockchain as a kind of highly reliable database you have smart contract code running on the blockchains nodes as the application logic but then you have a very very large kind of sea of services decentralized services that can be connected into your decentralized um the decentralized services that can be connected into your hybrid smart contract to give it progressively more and more functionality while maintaining the key trust and reliability guarantees of that hybrid smart contract because if you were to just connect it manually aid would be a huge amount of work and b it would be very brittle and easy to break and therefore the contract wouldnt actually be reliable and it wouldnt be delivering the guarantees that a hybrid smart contractor really any smart contract is supposed to deliver yeah this is a very large and very powerful idea particularly for people who are coming to us from the finance side who dont have computer science backgrounds this is called soa service oriented architecture the idea here is that you have a series of services that you can abstract from and that you can compose new services uh with in a way that is effectively encapsulated and can be plugged and played into other types of applications its a very big picture idea and i think the uber metaphor is a very apt one so this would be a sort of service oriented architecture for the blockchain era give us a sense of where you are with this how close is this to being ready for prime time ready for application development ready for production i mean its its ready now and its and its been ready for for some time its just evolving into more and more advanced um decentralized services so we already have hundreds of decentralized oracle networks on many different chains we already powered d5 on a multitude of chains across ethereum um binding smart chain polygon a number of a number of different different chains so these services are already available on different blockchain environments and they have so far historically been very focused on providing data we have already expanded into two types of computation namely vrf which is random number generation random number generation is very important for um gaming of various kind and for nfts when nfts are generated you need them to be generated fairly in order for them to have a certain um claim to being valuable then theres also keepers keepers are devops bots that can trigger contract events off-chain um they are really the beginning of more and more advanced off-chain computation um and then theres more and more advanced option computation like fair sequencing services to avoid um mev and and and other things so we are kind of on on a continuum here right we we are already very well into the continuum where chain link powers the the majority of d5 today so if you go down the list of the top you know 10 or 20 d5 projects youll see that the vast majority of them are powered by chain link data because that data is um guaranteed in this consensus-driven highly validated manner and has withstood various attack vectors that other systems havent but but now youre seeing a need for more and more advanced services one more advanced service is the ability to provide identity data right so that is a type of data but its not market data its identity data so that people can be permissioned into using certain financial applications and identity data is actually one of the big hurdles that enterprises face when making smart contracts so being able to provide identity data so that enterprises can guarantee that theyre meeting all kinds of legal requirements when making their contracts accessible to certain parties um can can open that part up of the world up to them and and its like that with really every subsequent service right so if you have random number generation suddenly blockchain gaming becomes a lot more attractive if if you have identity data suddenly institutions and enterprises can use d5 if you have weather data suddenly you have weather and crop insurance if you have global and shipping data suddenly you have global trade agreements and and then as you provide data you actually find that the more and more advanced contracts people want to build are usually a combination of different services just like the more and more advanced web applications are never a single piece of uh code made by the developer and a single service its very often a piece of code with five or six or seven or ten services that are all interoperating around that piece of code and this is actually even how bank applications are built on the back end within large banks is they have their own services that are only accessible to their internal um kind of bank developers so so whats really going on now as as you rightly put it is that youre seeing a service oriented architecture evolve on two important levels level number one is the contracts themselves and this is what i meant when i said that there were these templates right so theres um ave as a lending protocol thats a very good template for people to you know consume yield related activities then theres synthetics is a very good template for derivatives related activities and those can really be viewed in our services that other smart contracts can use then there is another level of the decentralized services outside of a blockchain and that includes all of the worlds data all of the worlds computations that blockchains dont do but that do need to be trust minimized and all of the worlds kind of activities that a blockchain or a smart contract would need to engage in but cannot engage in natively and so while that might sound somehow simplistic it its its actually a very very large universe so its the entire universe of everything that smart contracts want to do but are unable to do themselves on a blockchain which is basically everything other than tokenization dow voting and you know a few other other types of things everything else that smart contracts are being written about today they will need to interface with some kind of decentralized service they will need randomness to prove that their lottery contract was properly settled they will need weather data to resolve the insurance agreement they will need location of goods to pay out the invoice they will need all of these different um either computations and or pieces of data and and my strong belief is that it will not only be one or the other it will actually be the types of combinations that you see in more involved and in advanced web apps is where you see data and computation from various other systems combined and its its that combining that needs to be done in an abstraction layer or what we call the decentralized meta layer and its chain links 2.0 goal to arrive at this um kind of plethora of a different services and and the fascinating thing is that its its not just about us building services its about an entire community of people building different services building different data related services such as uh theres d climate that is a weather data aggregation now that generates its own um weather data related service about um a specific topic in the form of a chain link network powered um oracle network and and and so what this is really about is generating all the capabilities that blockchains dont yet have but need in order to achieve their full potential in the form of hybrid smart contracts that thats really what our fundamental goal is is to take our industry from being about tokens and dows and a little bit of defy to growing that industry 10 or 100 or probably a thousand x into something that um is predominantly about the internet of contracts the internet of value the internet of trust um in these more advanced contracts which once again will be equal equal parts off-chain decentralized services and on-chain code using those services and and if you look at how dfi is built and decentralized insurance in its in its few cases now is built that is how its built yeah fi is a hybrid smart contract decentralized insurance is a hybrid smart contract and the more that thats going to continue the more decentralized services um run on these decentralized oracle networks within chain link 2.0 is is going to be more important you know sergey in the last hour or so that weve been talking weve covered an incredible amount of ground weve gone in very deep uh talking about some of the use cases talking about the technology talking about the philosophy and the overarching view of what the world could look like what are some final takeaways that youd like to leave the audience with what are some of the most important things that you think people need to know i i think that our industry is at a very early stage and i think it has a much greater and very different impact than many people seem to think because there is a lot of activity around tokens and and speculation and that type of stuff and once again while tokens have brought a lot of value into our industry and thats good because its its created a base and foundation on which dfi and other things can grow i think that anybody who is really evaluating our industry from any point of view but especially from the point of view of whether they want to work in this industry i think they should ask themselves if they think the world works the right way today do we all really believe that the way that um you know the global financial system the global system around currencies the global system around insurance the the way that global trade operates do we really believe that that works in a in a fair impartial and economically kind of encouraging way for everybody or do do we believe that that that those set of systems are fundamentally captured by a select group of people that bend them to their personal interests at the expense of the vast majority of everyone else and society as a whole i think that is the libertarian idea in question that um has driven a lot of people in this indus into this industry over the 10 plus years that ive been here and over the seven or eight years that ive been building smart contracts if you look at this industry and and well actually more importantly if you look at how the world works and you say you know i think the world should be more transparent i think the world should be more um fair in how people have access to economic outcomes and opportunity i think emerging markets should have the same level playing field for global trade and a system of contracts as the rest of the world and i think that global financial crises are basically based on a few select group of people using their asymmetric advantage with gaining information to their benefit at the expense of society you know those are the types of things that you think should get remedied then this is probably a good industry for you to think about its a good industry for you to think about working in its a good industry for you to think about getting involved and its a good industry for you to go to a meet-up about because this is the industry that will solve those problems there is no other industry on this planet that is looking to solve those problems or has a chance of solving those problems um this is the place where thats going to happen so if you find those types of things interesting if if you had you know fake concert tickets sold to you if you didnt like that or if the insurance company didnt pay you or if you think the global financial crisis is is is surprisingly um unaddressed and the only way to address it is to build entirely new financial systems that force transparency out into the world rather than than than than tweaking what what you know what weve already all been doing then this is this is a very good place for you to think about joining you should you should join you should become part of this you should do something in this industry you should join a company you should work with somebody you should go to a meet-up you should see how your industry can be improved through this technology its a good thing its gonna its gonna its gonna change your industry for the better if you think thats better if you if you think that your industry and the world can be changed in these ways um you know once you give that some thought if you feel that theres room for improvement there and you feel that thats important you should get involved you should you should join us here in this industry well said sergey and thought provoking as always thank you so much for joining us thank you for having us thanks for watching everybody As much a philosopher as he is a technologist, Sergey Nazarov, co-founder of Chainlink, joins Real Vision to discuss some of the core theses of DeFi and the meta-layer’s role in smart contracts. Smart contracts will likely play a large role in the future of finance, but they have a long way to go. Companies like Chainlink and their partners are working to expand what they call “the meta-layer,” the framework connecting blockchain ecosystems to off-chain datasets in order to build out more complicated smart contracts. This is all part of the Chainlink 2.0 mission. Nazarov walks viewers through interesting developments on this front as well as additional topics like the quantum risk to DeFi, lessons from the ‘08 financial crisis, and more. Interviewed by Ash Bennington on July 14, 2021.Thanks for watching Real Vision Crypto! Check out the full interview here!: Chainlink 2.0: Expanding the Meta-Layer The Interview - Crypto Ash Bennington & Sergey Nazarov Subscribe to our channel now for more videos like this one: About Real Vision: Real Vision is where you can gain an understanding of the complex world of finance, business and the global economy with real in-depth analysis from real experts. Connect with Real Vision Online: Real Vision Crypto: Twitter: Instagram: Facebook: Linkedin: Chainlink LINK Crypto DeFI Smartcontracts Blockchain 0:00 Tangible DeFi Use Cases 11:48 The Importance of the DeFi Thesis 21:21 Benefits for Emerging Markets 28:58 The Internet of Trust and Value 41:49 Chainlink 2.0: The Meta Layer 51:45 Current State of DeFi Infrastructure 59:35 Final Thoughts Disclaimer: This is pretty obvious, but we should probably say it anyway so that there is absolutely no confusion…The material in REAL VISION GROUP video programs and publications {collectively referred to as “RV RELEASES”} is provided for informational purposes only and is NOT investment advice. 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