Week 2 - Diving into Protocols

     I had several meaningful moments this week while having my one on ones with the team. I got to meet people with backgrounds in investment banking, wealth management, gold and copper trading, game theory and design, philosophy, and much more. What I learned most from these meetings is that there is no one college major or talent that prepares you to work in this industry (probably the case for most jobs). Rather, school teaches you how to learn and be a critical thinker which you can use to become an expert in this industry.

    I have learned so much this week from just sitting in on conversations and doing independent research. As I mentioned in my previous blog post, I am choosing one protocol (crypto project) to do a deep dive on. The protocol that I chose is a solution to use off-chain data to execute on-chain smart contracts. It does this using solutions called oracles and application programming interfaces (API's). Here is a simple example to explain this:

    I bet Rishi 1 Ethereum (cryptocurrency) that the Lakers would beat the Suns, and he did the same in support of the Suns. To do this, we both sign a smart contract agreeing that depending on the outcome, the money will automatically be drawn from either of our wallets and sent to the other. This is a trustless process, so I don't have to nag him to pay me and vice versa. 

    This problem with this smart contract though, is that the Ethereum blockchain doesn't know whether the Lakers or Suns won, because that is off-chain information. Therefore, it needs some way to access real-world information to execute the smart contract. This is where oracles come in. An oracle would retrieve data from another source on the network like my dad who would report which team won the game. The smart contract would then consider the answer and execute the transaction. 

    Naturally, this process occurs on a much larger scale than just asking my dad, because that means that there is a single point of failure. If my dad reports the game result incorrectly, then the money would go to the wrong person. That is why oracles retrieve data from multiple sources (person designing the contract can pay for more sources for more accuracy), and then report a result such as a mean or a mode. 

    One question I had during this was, why can't the oracle just get the number from a centralized source like ESPN? The answer is that it could, but it contradicts the concept of decentralized finance. It doesn't rely on centralized/ private entities that could corrupt the process. Rather, it utilizes its network of users to make decisions, govern itself, and even report data. In this kind of system, there are intense validating processes and penalties for malicious behavior. On the flip side, there are also rewards for things like reporting data. These rewards are usually cryptocurrency.

                                                        

                                                    

                                               This is Ethereum's price since 2016