Chainlink co-founder Sergey Nazarov recently sat down with CoinDesk Spotlight hosts Jennifer Sanasie and Sam Ewen to discuss the philosophy behind cryptocurrency and smart contracts, the boom of stablecoins and tokenized real-world assets, and how the U.S. is positioning itself to shape the future of onchain finance.
Nazarov recounted his early interest in the blockchain industry beginning with a fundamental understanding of smart contracts.
“Smart contracts make a lot of sense because they basically eliminate risk.”
He drew a distinction between the “people risk” of traditional, centralized finance and the “tech risk” of decentralized smart contracts.
“When you deal with an institution, people can decide to do things about your contract. But your counterparty risk with smart contracts is basically the details of the contract – you understanding them correctly and them being executed correctly against technology.”
Given the option, Nazarov’s choice is clear: “I really would much rather have tech risk than people risk.”
Built correctly, he explained, the tech risk of onchain financial products powered by decentralized oracle networks is “infinitesimally small” compared to the track record of traditional finance.
“Silicon Valley Bank is people risk. Bernie Madoff is people risk. Enron is people risk. The 2008 financial crisis is people risk. The Greek monetary sovereign debt crisis is people risk.”
Deterministic smart contracts, on the other hand, offer cryptographic guarantees.
“You can verify what the lending market can or can’t do. You know that the lending market can’t withdraw your money into the CEO’s wallet. Can’t do it. You know that the collateral in the lending market information will always be available to you. Always.”
For Nazarov, smart contracts not only create superior financial products; they can fundamentally change how the world transacts by shifting trust in institutions to trust in cryptography.
“If you can make all of the relationships that people have guaranteed mathematically through smart contracts and through blockchains and through private keys, that’s a different way for the world to work. And that’s just attractive to me, because I don’t really need to trust in a person or an institution or a government at that point, because I can trust that the smart contract will always behave correctly.”
He believes this concept can be difficult for people to understand until they see it applied.
“This is about guaranteeing outcomes that could not be guaranteed before. And the value of that is immense.”
Watch the full interview.