Sergey Nazarov of NXT Secure Asset Exchange

Stephen Chun: Hello I’m Stephen Chun and you’re watching Money & Tech and we are here at Coin Congress in San Francisco. We are joined here by Sergey Nazarov, Co-Founder and CEO of Secure Asset Exchange.

Sergey, thanks so much for joining us.

Sergey Nazarov: Thanks for having me.

Stephen: How’s the congress so far?

Sergey Nazarov It’s great! Lots of smart people.

Stephen: Tell us, we were chatting off camera and you had these side groups, what was going-on on those small discussion groups.

Sergey: Yeah, I think the focus right now is on smart contracts and how you can get those smart contracts working into some form of minimum viable product to get it out to the market because a lot of people are eager to see the potential of the blockchain be realized.

I think there is a few different dimensions of what a smart contract could be which would be good to have more clarity on. There’s a simpler version of a smart contract where you just write contractual terms and computer codes into a blockchain. Then, there’s the verification of those terms and then there’s also the enforcement.

So in my mind, those are the 3 kinds of levels of difficulty of making smart contracts, trust lists. So the first trust list piece is that you’re writing them into a database that now cannot be modified. So that creates things like permanent [01:18] for performance of contractual terms which is in itself very valuable. Then you need a computing environment that people trust to verify whether those contractual terms are being fulfilled.

That also needs to be translated on any number of dimensions and a lot of the conversations are about ‘how do you trust the verification and based on that verification, how do you kick off enforcement in a way that’s also trustworthy’. So those are very big problems, but I think the technology to solve them is finally emerging. And I think that there are a few people that aren’t waiting.

Stephen: So what makes it completely decentralized?

Sergey: The strongest version of a smart contract is when you have decentralized computing and that would be when the server side process of actually verifying and enforcing a smart contract would happen on a decentralized network of nodes. Just something like Bitcoin exists right now.

That’s a very difficult technological problem to solve because you need to make a virtual machine technology to work in a way that is difficult to do well. That’s a very idealized version of smart contracts. My belief and what we’re working on is that you can get to a certain level of a smart contract that is written into a blockchain and verified in any number of services and it can still function and provide a value of a smart contract to a certain degree and that degree is enough for certain used cases.

Stephen: You bring up a good point. How does smart contracts relate to NXT block chains specifically?

Sergey: So specifically we’ve done it on NXT. NXT is the 3rd, 4th most valuable Crypto currency. In general, it fluctuates sometimes on a daily basis between 3rd and 4th, but it’s definitely the 1st most valuable, by market cap, blockchain Crypto currency.

Stephen: What are the benefits of running it on the NXT block chain?

Sergey: Well the benefits of running it on the NXT blockchain is that the messaging capabilities and the capabilities… NXT was not made to be another payments Crypto currency, it was made to be a platform for doing things like smart contracts and decentralized exchange. So the benefit is, NXT was architected in a way to allow you to write other types of information into a blockchain very quickly and securely. So the quickly is 1 minute block generation time as opposed to 10 minutes or 40 minutes or something like this. So it’s down to a minute.

Stephen: Significant big difference!

Sergey: Yeah, it’s a big difference. It’s a very positive thing that they’ve done and it’s very positive for something like decentralized exchange when you want. So yeah, it’s a very good thing that we started building at Secure Asset Exchange on top of the May 12th launch of NXT’s decentralized exchange, which really is pretty revolutionary. Because it’s been a few people that have tried to do decentralized exchange but they haven’t succeeded on the level that NXT has because if you look at the basic numbers, since May 12ththere have been 190 assets tradable decentralized assets issued and on average, there’s 3 that is being issued daily. There’s nobody who could strive to do truly decentralized exchange that has come close to those numbers even within a year period. This is like a 2-month period. Fundamentally, NXT as a platform is working.

Stephen: You may have explained it in bits and pieces but can you walk us step-by-step how to create a smart contract using your creator?

Sergey: It’s really very simple. You would go on and you would sign up which is a very simple process where we generate you a secure password. You should keep that password because we don’t keep it for you. We don’t have your password at any point in time and if you lose your password, you lose access to your account. And that’s very important.

Stephen: That’s a very important note of information.

Sergey: Yeah, we put it out there, we make people re-enter the password before they can continue to make sure they’ve recorded it. But the benefit of that is you don’t have to trust us with keeping your password and having access to your account which we think is a very large benefit. You do that, you sign up that’s very quick, that’s literally a few seconds.

Then you go to create smart contracts and you give it a title. You make a natural language, just descriptions, just smart contract for this, this, and that. You enter the amount of smart contracts that you’re issuing. You can issue a hundred or a million, how many units that you want to issue.

Then you assign a value to it. And that value is written into the NXT block chain and is verified against external things to see like “have you fulfilled the value of the contract” and you also define an expiration date. So you define a date in which the smart contract is done or by which date the conditions of the smart contract should be fulfilled.

Stephen: Is there a waiting period of the other host for the smart contract? Between you and the other person.

Sergey: Right now, the way you would define who it is between is you would really put it in the natural language piece, right? And very shortly soon, we’re going to release “if this then that” statements where you can make links between accounts. But really right now, the smart contract that you can make is just around an event that will happen for anybody who holds a unit of your smart contract.

So, you just make a smart contract and you give the unit, all of them or some of them or whatever amount you want, to somebody and then based on their ownership of the smart contract as a percentage, they would receive whatever that smart contract is going to do.

Stephen: In regard to smart train, what is real-time revenue sharing?

Sergey: Real-time revenue sharing is a smart contract type that we are excited about because we think it utilizes the full potential of this technology to create trust between two individuals, namely, somebody who has a revenue stream – a verifiable electronic revenue stream that they wanted securely and verifiably distribute to somebody else.

So let’s say I’m a content site and I generate 10 million units and I make a hundred thousand dollars and I want to share my revenue stream with XYZ person under ABC contractual conditions. Let’s say you put up 10% of that revenue stream for 6 months, what you can do now that you couldn’t do before is every time an ad is served, let’s say it makes a dollar. 10 cents from that singular ad goes from the ad exchange to the smart contracts. So the point of failure that we eliminate in real-time revenue sharing is that the money doesn’t go to the person who owns the content site.

The person who owns the content site makes a legal request to the ad exchange, he publishes that legal request also in the smart contract and it says to the ad exchange “hey, for the next 6 months, send 10% of all the revenue I would have gotten to the smart contract.” Let’s say an ad makes a dollar, so 10 cents gets sent to the smart contract. There are 10 units of the smart contract and so each person gets 1 cent. But none of those people have the risk that you will get, that they will somehow increase the amount of ads that you show would increase your success in terms of revenue and they will not receive that revenue.

That possibility is no longer there. It eliminates a critical point of failure of trust between people for sharing a very valuable economic resource. And if we can do it down to the resolution of real time, why wouldn’t we. We have this really cool technology that can do this, why would we do less when we can do more. So that’s what we did.

Stephen: What is your short term and long term goals that you see with smart contracts?

Sergey: Our short term goals are to make them usable for folks, in terms of on a personal level, people sharing to a market, a larger market, an open market, as long as they comply with all the legal restrictions that they’re supposed to comply with. And another piece is Escrow. Escrow services where, there is Escrow conditions to external data points. So those are features we want to launch.

We’ve started launching them now, we want to make them highly usable for users. We don’t take any money for any of this. We’re taking a very long term view. We don’t charge anything. Any fees that you pay on Secure Assets Exchange are purely into the NXT network because it’s just a function of using a network and you have to compensate the network for its work. That’s how the network functions. That’s how it grows, that’s how it becomes valuable for the people that support it, as nodes and things like this.

Challenges are bad actors. So people who misuse this technology in some way that somehow leaves the other party in a bad position. There’s some technological challenges with decentralized computing to make that piece a bit trust list. Yeah, there are certainly a number of technology risks with any new technology. It’s the technology risk that we’re comfortable with because their upside is just huge.

Stephen: Remind us again, it’s at Any final words before we let you go to your speaking presentation?

Sergey: Yeah, I answered the short term piece of we want to do in the short term. I can just tell you what would be cool in the long term. The thing that keeps me up at night, the thing that gets me super excited is that right now somebody like in Papua New Guinea could discover oil. They can discover a natural resource, they can discover something of value. And within the current system, they can make a ton of promises that they know at the time they are making them they may not have to keep because the legal infrastructure, the banking infrastructure and all these things that are supposed to enforce their promises, they won’t. That’s why a lot of folks that control resources that really in terms of just terms belong to other people make false promises.

So the really cool thing I think would be if in the future somebody gets a natural resource, or somebody gets a piece of a company, or something that does belong to a larger group of people and instead of them going out and making a bunch of big promises, and we have a vision and we have a this and we have a that. Instead of all these wonderful nice terms to get the placid people in doing their will, they will make a smart contract. They will go nuts. We will take all the money, we will take the revenue stream from this. It will go here, I don’t control where it goes.

It will go there and when it gets there it will be distributed according to the ownership of these, these, and these people. And all of that will go through a public ledger and if at any point it stops it will become readily apparent to everybody. And if it stops, then we have all this money in Escrow that if for whatever reason (the smart contract doesn’t care what). For whatever reason, my promise that I made to you when we began out of this endeavor isn’t being fulfilled, then all that money in escrow gets where it goes. It goes back to you.

There’s no legal process, there’s no vagueness. There’s no capacity for people to make very significant, important promises and not fulfill them. And I think as a general dynamic that’s going to improve society in the next 5, 10, 20 years to really large degree because people will just be making a very valuable agreement and you’ll be like, “oh, you want to do this, then okay, let’s put it in the system that neither you nor I can escape from and we have to fulfill what we said.” That’s a world I would like to live in.

Stephen: Thanks so much for sharing your passion with us and also everything about Secure Asset Exchange.

Sergey: My pleasure.