Bankless - 149 - Ethereum in 2023 with Vitalik Buterin

Starting point is 00:00:06 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Ethereum in 2023, best guest to talk about this, Vitalik Buterin on the podcast today. We talk about what in the Ethereum application ecosystem, it's a title of this blog post, what excites Vitalik going into 2023. A lot of optimism dropped in this episode that you've got to stay.

Starting point is 00:00:36 tuned for. Before we get in, first, a little bit of housekeeping for bankless listeners. We are revamping our sponsor strategy going into the next year, and we're going to be putting a focus more on the sponsors and the projects and the companies that are playing long-term games in crypto. And so we're excited to be building out a strategic relationship with Cracken. The reason David and I like Cracken is because they're one of the few crypto exchanges that didn't rug us last year, right, David? Yeah. They've also implemented proof of reserve. before anyone ever asked them to. So they have been leading the frontier

Starting point is 00:01:12 of centralized crypto exchanges that can use cryptography to check themselves. And so implementing proof of reserves before they were asked to just indicates that Jesse and the rest of the Cracken team are here to do good by crypto and to leverage the powers that make crypto awesome. So thank you, Krakken, for sponsoring this.

Starting point is 00:01:31 A few things to look out for in this episode, as always. Number one, why Vitalik thinks our villains are getting worse? actually worse, every single cycle. This being the, maybe the worst cycle of villains of all. Number two, why he plans to say Ethereum rather than crypto moving forward in 2020 to describe the industry instead of applications built on top of it. Number three, why he thinks simple defy good, complicated defy bad. There's a lot of nuance to that take that we get into. Number four, how he thinks Ethereum can actually solve the internet's big, bad identity problem.

Starting point is 00:02:04 How do you determine who are the bots and who are the humans? How do you keep identity decentralized? Vitalik's actually bullish that Ethereum has a massive role to play there. And finally, his answer to the question, what is Ethereum's most scalable use case? That's an answer, David. I don't think either you or I expected. You'll have to stay tuned for that in the episode as well.

Starting point is 00:02:25 What should people pay attention to as we dive in here? I think the big question that is the overarching theme about this episode is how proliferated are some of the use cases that many, many people, and definitely us, talk about. For example, DOWs, how much of a Cambrian explosion will there be with DOWs? How many DFI apps are there actually going to be? Are there going to be as many DFI as there are websites? Or are there just going to be a few DFI? How many DOWs are there going to be?

Starting point is 00:02:54 And this is one of the conversations that we start off this podcast with Fitalic. He gives the examples of Esperanto, a esoteric language that was meant to be a universal language for everyone to adopt that would help support global peace. And then also Linux, fantastic technology with a medium amount of adoption in some specific cases versus the internet, which is the most adopted piece of technology of all time. How much a crypto adoption will there be in contrast to these three anchor points? And what can we do to help make crypto be adopted as much as the internet and not be left to some esoteric hobbyist group who thinks the Esperanto language is cool?

Starting point is 00:03:32 And so we talk about this frame of reference in the application layer, in the Dow layer, and the identity layer, and how Ethereum can really change the game and hopefully how we can move the needle in 2023 and look back on 2022 and take some of the lessons of the 2022 to make sure that we don't repeat them, Ryan. Look, guys, every episode with Fetalic is a must-liss, and this is certainly no exception. And David, I'm excited to explore some of those topics with you in the debrief as well. That's the show. We record after the show for our premium members.

Starting point is 00:04:00 And in that, David, I think I want to talk to you about. this idea of crypto maybe being a niche versus going mainstream, something like the internet. And also this theme that Vitalik kept coming back to in this episode, which was we actually have a role to play. We can make crypto bigger and better. And we can actually build towards a future where crypto is a technology adopted like the internet and not just some esoteric niche. So we'll be talking about that in the debrief too. Guys, we're going to get right to our episode with Vitellic. But before we do, we want to tell you about these tools to help you go bankless. Arbitrum 1 is pioneering the world of secure Ethereum scalability and is continuing to accelerate the Web 3 landscape.

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Starting point is 00:07:10 That's DESO.com. Bankless Nation, Vitalik Bouterin, is on the podcast today. Vitalik is your friendly neighborhood Ethereum developer. He's an elf alpha male who thinks we should rename gas demand. I didn't know that, actually. Vitalik, welcome back to Bankless. How you doing? Thank you so much, guys.

Starting point is 00:07:28 It's great to be here. Vitalik, 2022 has been an absolutely crazy year. Disastrous. Yeah. And like the industry is hurting. The community's feeling a lot of pain. Maybe just to kick this thing off. Can you just give your thoughts and reflections on this?

Starting point is 00:07:43 Like, was this unexpected? What's your assessment of the crypto community after this crazy year we've had? So 2022 has been, I think, a complicated year, right? I think a lot of people are remembering the year for all of the years. terrible stuff that's happened and within the crypto space for all of the multi-billion dollar blowups. But I think it's also important to remember all of the various positives that the crypto space has seen.

Starting point is 00:08:13 So the merge, I think, is the most recent one, but the big one, right? This is something that the Ethereum has been waiting for pretty much since its inception, right? And it's been delayed and complexified and turned out to be more complex than we thought. And lots of things have happened. But now, finally, as of September 15th, I think it was 0645 UTC, you know, we actually have a proof of stake chain, right? And, you know, doesn't it just like feel good to be able to say? Like, no, no, not Ethereum is going to reduce its energy consumption by 99.9.9%.

Starting point is 00:08:52 But Ethereum has reduced its energy consumption by 99.9%. Right? Like, we're literally talking about going from a level of electricity consumption similar to the entire country of Austria to a level of electricity consumption similar to the entire country of, I know, maybe San Marino, maybe Vatican, like, one of those, right? So, huge success also from the just protocol security point of view. Even a huge success from the usability point of view, right? So, like, a lot of people don't realize this, but the merge was actually a transaction inclusion time decrease, right? And this happened for a couple of reasons. One of those reasons is actually the easier one to understand, which is that, you know, blocks have thousands of attestations that are coming on top of them.

Starting point is 00:09:43 And so you have thousands of confirmations happening in parallel. And what that basically means is that a few seconds after one single block comes, you have the equivalent of what would improve a work lanes be considered hundreds of confirmations, right? And the most recent forked block was six days ago. In the proof of work era, there would be multiple of these every hour, right? So that's the first reason. The second reason is that because block times now are, instead of being this very random plus on distribution thing, where, you know, sometimes you have a block every two seconds, sometimes you have a block only after a minute, here we have a block in a nice regular pattern of 12 seconds. And what this means is that on average, you only have to wait six seconds for a transaction

Starting point is 00:10:25 to get included, right? Now, this all sounds theoretical, but just for my own very practical experience, like, my experience using Ethereum has just improved massively. It's like, you know, night and day compared to, let's say, yeah, you know, July 2020 before all of this stuff and before EAP-159 happens, right? Like, these days, when I send a transaction, I click send, I wait a a couple of seconds and then I see, oh, that transaction got included into one block and it already has one confirmation. Like, it's not quite competitive with, you know, web to, oh my God, let's pay $35 million. So the latency is 184 milliseconds instead of 20012 milliseconds as standards. But it's like already good enough to be competitive with, say, credit card point of sale systems, right? And that's

Starting point is 00:11:15 something that I think is really important to appreciate. Like there's been just this massive increase in the usability of the base Ethereum chain that's happened pretty much under our noses. And EIP-1-559 was the first half of this. The merge was the second half of this. And the third half of this, of course, is going to be roll-ups that have pre-confirations, which is coming next year. And later on, we'll talk about how I think 2003 is going to be the year of roll-ups actually hitting stage one of terrestrialists, which will mean that Ethereum actually finally is in its scalable era, right? But before that. So the merge here, happened and the merge was amazing.

Starting point is 00:11:54 2002 was also the year of ZK. Evms, right? So five years ago, the zeitgeist basically was that, oh, there is this fancy thing called ZK. Synarch technology, and like maybe theoretically it could make abstract proofs and you can turn things into polynomials and, like, put stuff on top of stuff and maybe eventually verify an Ethereum block, but like, come on, it's so high overhead that's going to take like literally four weeks to make a proof and four years to actually audit the code to do any of that, right? But fast forward to 2022, and we have multiple ZK EVM implementations that are all promising some kind of mainnet launch next year. Like, this is amazing, right? Like, ZK.

Starting point is 00:12:42 EVMs have just gone from being a non-existent pipe dream to being the, I think clear and manifest long-term and possibly even medium-term, future of scaling Ethereum. Right. So that's number two. Then, you know, on the adoption front, right, sign in with Ethereum has seen massive, you know, gains in adoption. Ethereum, I think, goes in a great position to take advantage of people's desire

Starting point is 00:13:09 to explore the various alternative Twitter's, alternative social media platforms, right? So Farcaster, sign into that within Ethereum. account, Lens, sign into that within Ethereum account, and I've used, you know, Farcaster and Lens, and they're actually great. Fast forwarding to earlier in the year, I feel like, you know, a lot of crypto people have forgotten about this, but it's still super important to remember the invasion of Ukraine in February, right? Which is definitely an extremely tragic event overall, but the part of it that is, I think,

Starting point is 00:13:42 quite happy is obviously that they succeeded in defending themselves. far beyond both people's expectations. But I think, you know, cryptocurrency payments actually worked for them when nothing else worked. And, you know, they've actually, starting from that very first tweet that the country's official Twitter account, you know, made on the morning or the day after the invasion, you know, cryptocurrency actually has been a lifeline for the country, a lifeline for a lot of civilians and the people, right? And, you know, that's just like one example.

Starting point is 00:14:18 And then, you know, you have all these various small examples, like, you know, continuing adoption happening in places like Latin America, for example. You know, I came to Argentina last year. I came to Argentina this year. And the level of sophistication has improved by a lot, right? And, you know, one of the things I saw, for example, is when I visited just recently, there was a group, I forgot their name, I think it was called either Defi Latam or something vaguely called like this, right? But this was a, yeah, just a really lovely person from Venezuela. And he was basically saying like, hey, you know, the FtX situation is, you know,

Starting point is 00:15:00 helped to be realized that defy actually is important. And like, I want to help Latin Americans, you know, who need crypto actually interact with crypto in ways that are decentralized and that involve self-custody. And, you know, this person actually knew a huge amount about, you know, layer two protocols, a huge amount about, you know, different forms of self-custody and all of these things. So all of those things are, you know, continuing to move forward. Cryptocurrency is continuing to get used for philanthropy a lot. Last year was the year of, you know, crypto relief India getting its money. But, you know, this year, Crypto Relief India continued spending some of its money.

Starting point is 00:15:41 Also, Balvi, it's this group. that like I helped spin up that used some of the money to put money into these more, more experimental, but potentially much more high payoff options in terms of protecting people now and in the future against viruses. And that's funded amazing stuff like, you know, UV lamps, open source vaccine projects and a whole bunch of things. And like cryptocurrency as a international payment instrument for philanthropy has just been huge there. Right. So I think it's, importance to just remember 2022, both not just for the massive failures, but also for the amazing technological and adoption backdrops that we've had. And I think even the first

Starting point is 00:16:29 inklings of cryptocurrency and Wachian's spaces, ability to actually have very significant positive impacts on the world. But, you know, that's the year. So, well, Vitalik, thank you so much for coming into this with your optimist hat on and just remind. us that sometimes the bad definitely drowns out the good. As someone who's been through multiple market cycles, like every single market cycle has the bad year, right? The down year, right? 2018 was my first one. There was one prior to that. Is 2022 unusual in any respects? Or is this kind of par for the course of like, yeah, this is what happens at the latter half of April market. We have a lot of bad stuff. But meanwhile, there is relentless adoption, regardless, no matter what

Starting point is 00:17:12 year it is. Is 2022 unusual for you in contrast to other years of crypto? I'm trying to compare 2022 against the early to mid-bair market periods of the previous cycles, right? Actually, if you want to show people visuals, one great visual to show right now is the Bitcoin price from 2011 to now. Bitcoin just because of Ethereum, unfortunately, didn't exist in 2011. But if you look at that, right, you know, you see a, and of the great cycles, right? And, you know, you have 2011. And then the really big one at the end of 2013, and then the even bigger one is 2017. And then the, yeah, and a super big one in 2021. Right. And there we go. Wow. See, the very first one at the left, it's like so low that we don't even notice it,

Starting point is 00:18:05 right? Like if you just click the log button, wow. And so the 2015, right? So if you go down the flat part after the first peak, that's when Ethereum launched, right? So then 2018, that's the flat and the kind of cup and handle after the second ball market. That's when Uniswap was created and started existing for the first time. Now let's look at the flat and slightly decreasing line after the third bubble. That's when the merge happened and we had multiple ZKEVMs, and we're starting to see serious way or two adoption. So the post-peak periods are always periods in which there actually are some pretty significant technological progress that is happening.

Starting point is 00:18:59 They are periods where often it's easier for people to get back to work because the numbers aren't giving them dopamine hits every six hours anymore. there are periods where a lot of real work gets done and even periods where the good gets separated from the bad, right? So one of the other reasons I wanted to make that analogy is that if you go back to 2014, right? The FTX of 2014 kind of, Mount Gox. I actually kind of don't want to even call Mount Gox the FTX of 2014 because I just feel like the way, like, Marker Palace did a bunch of horrible stuff, but I actually feel like the way that he has handled himself post blowup has actually been kind of honorable. Like, you know, he hasn't tried to give himself a yesu, Jew style, a redemption arc or, you know,

Starting point is 00:19:47 and, like, kind of give himself attention on Twitter. It just kind of, you know, what quiet for a while just diligently worked on helping people get their money back and, you know, working on Gawks and other things, right? Like, that's, it's like our villains are getting lower quality now, right? that's, you know, like, Mark, I think, you know, he is actually, like, improved in ways that, like, I just, unfortunately, you know, don't expect people like Sue and Kyle to improve even a decade from now. But very much hope I'm wrong, though. I think I'm enough there. I'm always happy when people positively outperform my expectations, right? But the Mel Gawkes blow up in 2014, it did. feel like an existential crisis for the crypto space. It felt like a huge crisis for Bitcoin. It felt like a huge crisis for legitimacy. It was an invitation for regulators to swarm around the space. And it did have a lot of bad consequences in all kinds of places and it made a huge

Starting point is 00:20:52 number of people very unhappy. 2020, a lot of very similar things are happening. Except, you know, now we have, I think, a much more interconnected crypto. space and we have a lot more sophistication. And so, on the other hand, a lot more fragility and contagion happening. Though I think it's important to remember that, like, in 2014, there was fragility and contingent too, right? Because Mungox, when it collapsed, it was both the thing causing the crypto prices to crash and also the thing that people were used to as being the place where prices moved up and down. And so the market had to like basically crash and change where its numbers were coming from at the same time, right?

Starting point is 00:21:36 And here, you know, this year we had the double whammy of, you know, obviously first Luna coming back down to Earth and Tara going back to down to somewhere much, much lower than Earth. And, you know, six months later, obviously, yeah, FTX blowing up and then a month after that, I think blockfires like in bankruptcy or something like that now, right? So definitely echoes of a similar situation. But at the same time, like, I don't want to all be rosy about it because I think the other thing that's important to remember now that I think will make 2022 harder to recover from than 2014 is that I think a community having like this very high variance and like both high excitement and high turnoff approach to existing is something that's a very good strategy when you're trying to increase adoption from 0.1% to 10%. but it's a terrible strategy when you're trying to increase adoption from 10% to 70%.

Starting point is 00:22:36 I think this is a criticism I would have made of Bitcoin maximalism sometime ago, too, right? That if you're just a small community, then if you say incredibly over the top things about how the U.S. government is the primary source of all evil in the world, and money printing is the reason why, you know, we have some kind of military status, dystopia instead of you know, Switzerland like Happy Land for everyone, then you know, you're going to turn off a lot

Starting point is 00:23:10 of people who clearly kind of see through those attitudes and realize that there's a lot more complicated stuff going on in the world. But at the same time, there is going to be some portion of the population that like really believes in the thing you believe or is really receptive to the thing you believe. And they're

Starting point is 00:23:26 attracted to the passion with which you say it. And so they're going to, you know, wants to come along with you. And, you know, being in this kind of siege mentality where they are one of the few brave soldiers pushing forward the future, even if, you know, huge portions of the mainstream world and the Paul Krugmans and the Elizabeth Warrens and all those characters are, you know, rapidly against them. Like, there's a group of people to whom that, like, being in that position of the siege narrative really appeals to them, right? But that's how you get from 0.1% to 10%. And crypto is no longer in the stage of getting from 0.1% to 10%. I think there have been adoption charts and estimates that people have attempted to make.

Starting point is 00:24:10 And in some countries, ownership of cryptocurrency is literally at the 10% of the population level. So now the space is at the level of trying to get from 10% to 70%. And that requires different strategies. And strategies where this really crazy stuff that keeps losing people, $5 billion, keeps happening. are like the exact opposite of what the space wants and needs to do, right? So I wanted to give the message of optimism, but also give this kind of important message that there is a lot of work that needs to be done. And, you know, the status quo, even if it's a status quo that's like a kind of secretly exciting and fun for a lot of us. Like that's, you know, not the sort of thing that we want crypto to continue to be four years from now if we actually wanted to succeed. Is it possible we just get stuck in that niche of that zero to 10 percent? We never. I mean, I know it's possible, but do you think that's a high probability outcome? It's a good question. Back in, I think, 2011 or 12th, one of the earliest articles that I wrote for Bitcoin Weekly, it was called something like Bitcoin, Esperanto, Linux, or the internet. Basically comparing Bitcoin to like three

Starting point is 00:25:20 different things that started off as being these very idealistic movements to replace the existing system with a totally different and much better system, right? So Esperanto was this constructed language invented by Ludwig Zamenhoff in the late 19th century. The goal basically being to create a language which is easier to learn because it has much simpler and more regular spelling and grammar. And the theory was that everyone would learn Esperanto in addition to their national language and everyone could speak Esperanto with each other and that would be the path to world peace. And Esperanto ended up not really succeeding. right? It's this fairly niche interest community at this point. And, you know, there are speakers, but it's like enthusiasts that are just, you know, in it as a hobby, like even much more than a pragmatic communication tool or can actual attempts to make world peace at this point, right? And which is like sad. I personally love, like I never learned Esperanto super deeply, but, you know, it's a really cool language. I think the world probably would have been better if it got much more adopted. But, you know, it's a really cool language. I think the world probably would have been better if it got much more adopted. But. What's cool about it, by the way, just to nerd out for just a second?

Starting point is 00:26:30 Is it a combo of kind of like, is it some sort of Latin derivative? This is really based from scratch. They built a new language from the ground up. Right. It's different. Well, Esperanto is interesting. So, like, I have this combination of very, like, positive and critical views of it. I think the critical view is basically that it's a language that's drove to be universal,

Starting point is 00:26:53 but actually ended up being, like, very European specific. So like for example, the way that you make a plural in Esperanto is you add a J. And a J is pronounced to you, right? So kind of like how in Eastern European languages or in German, right? So if you want to say something, like I think Homo is like a person and Homo is people. And then you have like the N, which is the accusative case, right? The accusative case is like the same. Like, you know how in English you, like if you're doing something, you say I am doing something.

Starting point is 00:27:26 if someone's doing something to you, you say someone's doing something to me. So I is the nominative and me as the accusative. So a lot of European languages have that for nouns as well as pronouns and Esperanto has that for nouns as well. So it has a lot of these very European specific features, but at the same time, the good is that it is extremely regular. So like English, for example, right? Like you have words like who, what, where, when, why. And then you have like, well, that because therefore at that time. Or if you want like the negative, then you have no one, never for no reason, right? And like you have this kind of two by two table that's really complicated. In Esperanto, it's like a really, it's an incredibly clean system where like I think it's that like the first half

Starting point is 00:28:12 of the word is like, do you mean which, do you mean, do you mean that, do you mean no one? And then the second half of the word is like, are referring to a person or are referring to a time or referring to a place? So it's got a lot of regularity in the grammar. It's got a lot of regularity in the grammar. It's got a lot of regularity in the spelling, right? So English has a lot of these, you know, really dumb spelling rules and you have to, you know, memorize spellings of a lot of words really thoroughly, including the word thoroughly, which like makes totally no sense. But I guess that's the point, right? Even if you design the most perfect language from a technical perspective, that's not how you actually get adopted for a language. Right? So there's like

Starting point is 00:28:49 the theoretical perfection. Exactly. Right. So this is the analogy, right? It's, you know, it has all these beautiful technical properties, but the adoption of that basically went nowhere. Right. And instead, like, English had too much of a network effect. And, you know, especially post-World War II, where pretty much every major country except for the United States got turned into ruins. I mean, that, I think, set English on a path to dominance. And I don't really think anything else is in a position to challenge it now. Right. So that's Esperanto. Now, Linux is an interesting middle case, right? So Linux is interesting because it's kind of succeeded and it kind of has not succeeded, right? So Linux is this open source operating system. So it's an alternative to things like

Starting point is 00:29:35 Mac and Windows. So I'm speaking right now through a computer that is running a Linux distribution. But Linux has had this interesting mixture of success and failure. So Linux on the desktop is mostly a failure. So it is a product that is continuing to be developed and it is very usable and I use it and I think it's great but it just doesn't quite appeal to the majority of people, right?

Starting point is 00:30:01 But on the other hand, Linux has become this really important to like back end thing. So Android, for example, which a lot of phones use runs on the Linux kernel. A huge portion of all the servers run on Linux. A huge portion of developers, like including people who write the Ethereum codebase. Not all, but it's a very significant portion.

Starting point is 00:30:19 They run Linux on their computers because Linux is just very developer-friendly, right? So there's a lot of specific communities and specific applications in which Linux is very entrenched. And then there's this permanent dream of Linux as an open-source operating system becoming this thing that really takes over for everyone, but that just ends up never quite succeeding, right? And then the third is the internet, and the internet is just obviously completely taken over everything, right? And so my question back in 2011 is, is Bitcoin going to look more like Esperanto, more like Linux, or more like the internet? And I kind of was willing to accept all three possibilities as being likely, and I wasn't sure yet. I think today cryptocurrency is way past being Esperanto, right? But the question is like, how Linux-y is it going to be or how internet-y is it going to be? And I don't know. I mean, it's very possible that it's going to be in the middle, right? So like, It's very possible that, just one example, in developed countries, it's going to be like Linux on the desktop, but in the developing world, it's going to become ubiquitous. It's very possible that in both worlds, it's going to be something that's concentrated around a few particular industries, where, like, say, yeah, reversibility of credit card transactions and other things just, like, totally makes no sense that cryptocurrency is the best thing that works. it might just be something that people have

Starting point is 00:31:47 as a store of value without really using day to day and when a big crisis comes, it just becomes suddenly really important for people and people appreciated. Or it's possible that, you know, the next, basically all of the infrastructure of the next wave of technology is going to be built around cryptocurrency, right?

Starting point is 00:32:04 Hopefully cryptocurrency and Linux. That would be more the Web 3, that last piece. Exactly. Like the Web 3 mean. Yeah, so which one is it going to be? I don't know. And I mean, I am a definite optimist on this. I think which one it's going to turn out to be depends crucially on how hard we try and what we try to do.

Starting point is 00:32:21 Interesting. So you actually think that we have a lot of agency over the outcome of whether or not crypto actually replaces the internet or just provides a few very useful applications. I think absolutely. I think it's actually really important for good people in the Ethereum space to recognize that they have agency and exercise it. because I think if good people act passive, then the things that take over just are going to be, you know, the drama queens of the world, right? And like, I think we as people trying to build actually meaningful things, you know, have a responsibility to work hard to drown out the drama queens.

Starting point is 00:32:59 And that's a challenge. And I think sometimes the way we can do worse, sometimes we do better, but, you know, we got to try. That is a challenge, Vitalik. But that, like, I'm almost tempted to turn this into, like, give us. some personal advice here. Like, how do we do that? All right? So I'm leaving partially 20-22, again, feeling embarrassed that I'm in crypto. Oh, you have a crypto podcast. How's that going for you, bro? How's that going for you? And, you know, mainstream people outside, sort of the normies, the people who are in the 90%, not the 10%, they're looking at this industry and being like,

Starting point is 00:33:31 what, is this just run by a bunch of kind of clowns and scammers? Like, where are the adults? I thought you guys, you preach crypto values, and then I see all of this. And so, So I'm feeling a little down at the end of 2022, but also reflective in terms of like, why could we have done better? What lessons can we learn? Do we need to like, I mean, I know we've talked before about like how you call out, you know, scammers and kind of the social layer and you can you can veer too far to one extreme or another.

Starting point is 00:34:00 But yeah, what are your thoughts, advice for us in general? And then maybe we talk about like lessons for the entire community. So just to kind of start slowly moving into the Asia blog post, we wanted to talk about a bit. We'll start with the first eight words of it, right? So the title, I intentionally said what in the Ethereum application ecosystem excites me, instead of what in the crypto space excites me. This is in experiments I've been trying, right?

Starting point is 00:34:27 Basically, like using the word crypto less and using the word Ethereum more. And this is like a subtle thing. I mean, it's still an early stage experiment, so I'm not entirely. sure what all the consequences of emphasizing Ethereum in particular much more would be. But the theory here, so first of all, it's not maximalist, right? So it's not saying like, you know, focus on Ethereum to the exclusion of everything else. It's more saying we are not going to implicitly ally with you just because you are a

Starting point is 00:35:01 cryptocurrency by default, right? The problem with the crypto space is that the crypto space is an ungovernable commons. that has a no barrier to entry. Right? So if you remember, you know, the basics of Eleanor Ostrom's theory of the commons and what commons does create tragedies of the commons and what commons can be governed, one of the basic ingredients for a commons to be governed is gatekeeping, right? Like, you have to actually be able to, you know, say, you know, this is us and this is not us

Starting point is 00:35:30 and actually be able to, like, have some level of enforcement or filtering in the thing that is us. With the cryptospace, the only qualification to be able to call yourself part of the crypto space and not have people complain is to just somehow use cryptography and to have some kind of change data structure somewhere. Like those are literally the qualifications. Like you don't even need decentralization, right? Like I forget, has Iota even gotten rid of their coordinator yet? I forget now. No, the answer is not. Right.

Starting point is 00:36:00 Like XRP, right? like, you know, they're like still completely centralized. And, uh, but, you know, at the same time, they are, you know, on coin market cap and, uh, you know, still I think, uh, haven't apologized for writing documents to the U.S. government, uh, basically saying that they should be favored over Bitcoin and Ethereum because Bitcoin and Ethereum are China controlled. And like, but, so Vitaly, when you have a permissionless commons, right, you're saying the role of gatekeeper is essential, and that rule is essentially kind of a social layer type rule. Let me throw the criticism at you that you might expect to see. You probably won't expect

Starting point is 00:36:41 to hear that, but like earlier this year, you would have expected to hear that. If you talk about the Ethereum ecosystem, well, that makes you an Ethereum maximalist, okay? And crypto is much broader than Ethereum, and we live in a multi-chain world here. And so... And you're just pumping your bags, and decentralized values can exist outside of Ethereum or the so-called crypto-valuer can exist. So stop limiting yourself to Ethereum. That was kind of the jiu-jitsu move, some pulled, whenever you start trying to like redefine the boundaries and start to do a little bit of gatekeeping. Okay. So this is a good point. So here is my analogy. So suppose that you have an American politician who goes on CNN and he says, you know, here is a package of policies.

Starting point is 00:37:29 here are some things that I want to deregulate. Here are some things that I want to subsidize. And here are some things that I want to encourage. And the combination of these ideas is needed to reinvigorate American prosperity into the 21st century. If you hear someone saying this from the perspective of a non-American, does that sound America maximalist? No. Well, yeah, no, it does. Right.

Starting point is 00:37:55 Like, it does get a little bit complicated, right? because like there is definitely like I think a real effect where there's like some Americans that sort of acts like the non-americal world doesn't exist. But I think like just you know, the sentence that I just said, like, you know, it is totally innocuous, right? I think, well, the difference though is that people are frequently born into America and then that's just like not actually their choice. Whereas when you come into the crypto space, you're kind of like a blank slate and you get to choose your chain or tribe that you align with. So I think that's the biggest difference there. That is true. Though I think

Starting point is 00:38:27 I don't know, I feel like the whole, like, I've even seen immigrants to America be on both sides of the, you know, we love American prosperity discourse. But I think, you know, even still, like, sometimes like, oh, like the point that I want to make about Ethereum, right, is that I think that there should be a way to talk about Ethereum that doesn't implicitly, you know, lend credence to the, you know, the lunas and the XRPs and the Iotas and the Bitcoin Satoshi's visions. of the world, but that still does leave room for kind of valuing the good and the honorable things that are happening in other ecosystems. So, like, I'm happy to say that, you know, I think the Cosmos ecosystem, for example, you know, I deeply respect it because it is one of the few that's actually trying a very different region of design space. And, you know, they have this vision of, you know, a larger number of blockchains.

Starting point is 00:39:25 each of those blockchains has a small number of validators. They use these protocols to talk to each other. And they give up on shared security, but they have, give up on tight coupling, but they have modularity. And here's their arguments for why this might be a good idea. And like, I really respects the fact that, you know, they have a technical vision. They push a technical vision first. They, in my view, have not been pump and dumpy. You know, they have not done any, they have not bought any stadiums.

Starting point is 00:39:54 They, you know, have not put the face of their founder up on cylinders all over San Francisco. So, like, that's something I respect. You know, the Zcash ecosystem, I think I've talked about them consistently many times. You know, Bitcoin, I value the self-custody ethos and the decentralization ethos. And I think that's one that we have a lot to learn from. Right. So the thing that I'm getting at is that I think there should be a way to, like, both talk about Ethereum and even talk about

Starting point is 00:40:26 non-Etherium projects that we still think are contributing to good, but in a way where we're not extending alliance to everyone by default. And so, like,

Starting point is 00:40:38 this is one of the things that I'm in the process of thinking through, right? Like, basically, what exactly is the right formula for doing that? Like,

Starting point is 00:40:46 if you think about things from that perspective, right, like in 2022, what's the worst thing that happened in Ethereum land? I would say, probably like see this also depends on how you define ethereum land because nfts

Starting point is 00:40:59 board apes for example right some people would point to that and say look celebrity endorsements kind of pump and dump nfts where's the nfts well that was an erc 721 on what on ethereum so is ethereum ecosystem question mark i don't know maybe something like that i would point to i think if board apes are the worst thing that happened in ethereum in 2022 that's we're doing okay yeah i agree with that too okay um what's um what's What's the worst thing that happened in Cosmos in 2022? I don't, oh, oh, except for Tara. I keep forgetting that Tara.

Starting point is 00:41:30 I mean, do you consider Tara and Luna Cosmos? That is true. That is a, yeah. Yeah. That's why these boundaries are so difficult. Right. It's a good point, right? See, this is why I'm kind of intentionally hedging this as a, yeah, kind of thought in progress, right?

Starting point is 00:41:44 Because I think, like, ultimately there definitely is a tradeoff between being permissionless in the good sense and being permissionless in the sense of like letting literally anyone who wants to come in and borrow your social credibility, which is the type of permissionless us that we don't want. And there's probably some kind of balanced draw between those. Well, so that's actually an interesting case to unpack, because I feel like no one blames Cosmos, the ecosystem at all for the Terra collapse by the nature of the app chain model. Everything's kind of like compartmentalized, right? And so while there is composability risks, as in the value of UST, that got spread across the chains in Cosmos all went to zero.

Starting point is 00:42:24 No one really blames cosmos as a whole for that by the nature of how app chains come together. Perhaps one of the worst things to answer to after I've thought about the question, what's the worst thing that happened in the Ethereum ecosystem? I'm pretty sure the Wonderland drama, which was kind of Ethereum's microcosm of Terra. It was an algorithmic stable coin. Stable coin went to zero. Turns out X-Qyphu was the ex-Quadringa perpetual fraudster scammer person. That did happen on Ethereum in Ethereum defy. And so, like, that was on our chain. That was inside of our borders.

Starting point is 00:42:56 This is true. But I guess the saving grace as, like, the Ethereum influencer elite never treated Daniel Sesta with the slightest dose of respect. Yeah. Yeah. I fought with him for sure. Yeah. And I'm pretty sure even, like, the Cosmos influencer elite, did they ever treat Tara with that

Starting point is 00:43:14 much deep respect? I actually don't know. I don't think so. I don't remember any instance of this. Right. So, Vitalik, one of the main reasons to bring you on the show today, is because of a recent fantastic blog post. I want to connect these conversations

Starting point is 00:43:27 that we've had to this blog post with this first question. One of the things that I've been personally thinking about and as a result of your blog post is one of the main euphoric statements that I echoed and many people in crypto in 2021 echoed is like there's going to be a Cambrian explosion of DOWs. There will be so many defy apps,

Starting point is 00:43:47 NFTs and NFT projects for absolutely everyone. And that was like, okay, this is, is Web 3 is replacing the internet. We have this internet thing and where it's going to completely be replaced by Web 3. So earlier we were having this conversation. It's like, all right, is crypto Esperanto, Linux or the internet? And you're like, well, definitely not Esperanto, hopefully more than Linux, perhaps as big as the internet, but TBD. And then when I was reading some of the components of your blog post, which is like you said titled, what applications in Ethereum that I believe in, I was thinking like, oh, maybe actually in the defy

Starting point is 00:44:20 landscape, there's only a handful of very strong, very useful defy applications, things like exchange dexes like uniswap and sushi swap, things like borrowing and lending services like Ave. And then beyond that, a few more, but not too much more after that. And then also there's a conversation on DAOs. Are there going to be a Cambrian explosion of DAWS where me and my group chat form a DAW? And so does like every other group chat in the world form a DAW? We have all these bagillion dows out there, dows for every single stated purpose that exists, or is decentralization much more surgically applied to a few more use cases? And so these are some of the lessons I'm thinking of, and this is going to think, I think, being an overarching theme for the rest of this podcast.

Starting point is 00:45:02 But before we drive into specifically your article, I just want to ask you, as a whole, what lessons do you think we learned as an industry in 2022 now that we are in December looking backwards? Like, what lessons did you personally learn Vitalik? And what lessons do you think we should all make explicit here on this podcast so that we can know to not do them again in 2023 and beyond. Yeah, I think the big takeaway is that I think the crypto space is at its most honorable only in so far as it actually takes its own core principles seriously. So, like, I mean, what those core principles are should be pretty obvious, right? It's, you know, decentralization, openness, self-custody, being transparent with people, right?

Starting point is 00:45:45 And those are all values that FTX did the exact opposite of pretty much since the beginning, right? And those are, I would say even values that Terra violated to some extent. I mean, I think Terra's a more complicated case because Terra was a hybrid of a mechanism that was open and transparent, but it was just bad with a mechanism that the rescue fund, which was. was completely opaque. But that was FDX, I think, definitely, you know, the exact opposite of openness and trussles this. A lot of the applications that grew a lot, but then ended up completely failing, they probably tried too hard to kind of integrate with the mainstream and doing that by compromising toward the mainstream ways of doing things

Starting point is 00:46:44 and eventually you just get to the point where you realize there was just no point in having a blockchain left, right? So one of the examples of this might be like the supply chain blockchain trial. I think it was ASX or one of those groups that did it and it just shut down recently. There's just a lot of these enterprise blockchain projects

Starting point is 00:47:08 that have quietly shut down over the last couple of years. and even the blockchain enterprise projects that were not shutting down, they generally went into the direction of, hey, how about we're going to be more public chain now, right? That's a trend that I feel like we've been talking about for a few years already. So what kinds of things have succeeded, right? So Uniswap has succeeded. Rye has succeeded.

Starting point is 00:47:36 Dye, you know, in the middle of a very complicated governance discussion, wish it's success. You know, the Ethereum base layer succeeded. DNS succeeded, right? Smart contract wallets rising. Account abstraction, rising. Privacy technology, I think it's obviously hit a speed bump with the various legal issues, but that's, I think, something that is going to continue.

Starting point is 00:48:05 It is going to pick up again next year and over the next couple of years. So there's just a lot of different things that, like, actually are blockchainy and open and decentralized and trusted that basically survived the whole situation completely unscathed, right? And it's the centralized stuff where everyone is wondering, like, you know, hey, am I ever going to get my money back, right? Like, there's actually different ways of having this perspective, right? So, like, the more crypto-negative way of having this perspective would be to say that, like, oh, crypto was more honorable when it understood. that it was like a very niche gray market thing, kind of like the Pirate Bay, and it just tried to be that.

Starting point is 00:48:46 But then the speculators came in and tried to turn it into something much, much bigger than what it was supposed to be, and that's where all of the biggest harms are coming from, right? So, like, that's a view that you definitely hear from a certain tribe of, like, more crypto-negative people, but in some ways, that's basically saying the same thing, right? So, you know, whether you believe the more crypto-positive

Starting point is 00:49:06 kind of like slant on that or the more crypto-negative slants on that, And like the core idea that the parts of the cryptospace that are honorable are the parts of the crypto space that actually try to stay true to its values, I think is something that there is very broad agreement on. And that's the thing that, you know, I want to double down on. TrueFi is Defi's largest credit protocol connecting global lenders with institutional grade lending opportunities. TrueFi has completed over $1.7 billion in originations and paid out nearly $35 million to lenders, proving that DFI is ready to take its next big leap into the $8 trillion credit market. Trufai gives lenders, like you, access to sustainable high-yield

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Starting point is 00:52:15 Money, defy, identity, Dow's and hybrid applications. And I know you picked these five for a reason. So let's talk about each. And it's actually interesting because that you put money is the first. Because a lot of what you were saying, I think the last time you came into the bankless podcast or maybe. maybe a couple times ago, Vitalik was like, hey, money is one use case and that's cool, but I'd love to expand outside of money. And yet, money is the very first use case. So could you talk about

Starting point is 00:52:41 this? Is this a proven thing? What do you see in the money use case that's actually exciting in Ethereum? No, you make a good point. So like I think there has been this contradiction in the Ethereum space, almost since the beginning, between a vibe that wants to try to be more than just money, in part because it wants to try to be more than just Bitcoin, versus, you know, the reality that's just obvious from the outside of the space, which is that cryptocurrency as currency just is far more proven than all of the more speculative stuff. I actually think, though, that the two perspectives are more compatible than it might seem. And the reason why they're more compatible than it might seem is because the application category that I spent the least

Starting point is 00:53:28 time on in this post is defy, right? Like, I think the vibe that I was reacting to when, for example, I made that presentation in Paris about a year and a half ago was one where there was not too much attention on money, a huge amount of attention on all kinds of incredibly complicated defy things, and then a tiny amount of attention on, you know, non-money and identity and social stuff, right? And my view on defy that we'll get into in this post is basically that I think simple defy good, complicated defy bad, right? Like by far the most important applications in the defy space in terms of actually being able to provide value to people are just incredibly simple stuff like, for example, stable coins, right? Stable coins are defy. They do involve significant financial engineering, especially if they are something like,

Starting point is 00:54:28 die or rye that tries to work without centralized external collateral. But they provide a service that's looked very simple and dumb to the point where you don't even realize that it's defy, but they are defy at the same time. Uniswap is defy, but it's just so simple and we've had it for like five years now, right? Prediction markets are defy, but we've had them for five years. Like generally, I think defy that we've had for four years is generally a, better kind of defy, the defy that emerged in the last two years, is my general take, right? And you're not saying that that's just because of how old they are. You're talking about there's

Starting point is 00:55:07 a certain kind of product that came out of the early cohort of defy that new defy is fundamentally just different from. It's not about the time, right? Exactly. I think, well, it's a product of the time, but it's not about the time, right? It's a product of the time because the applications that emerged in the more old school period were applications. that really cared about providing these specific forms of utility that are very queer to people in this very abstract way

Starting point is 00:55:40 where they're queer even if you're not part of the ecosystem already. Whereas the newer stuff, it's like, oh, well, we're going to build a thing and you can liquidity farm it and it looks like you can maybe get 11.4% APR interest. And, you know, hush, hush,

Starting point is 00:55:55 we're not going to talk too much about whether or not the 11.4% APR is sustainable. So the newer stuff basically tends to be more often justified by like short-term evidence of what it does. And that's a very bad epistemology in the defy space because it's just so easy to get short-term good performance by sacrificing long-term performance, right? Whereas the categories of applications that existed for four years, like if they did not have long-term value, people would have forgotten about them by now. Although I would say like honestly, four years ago, even the Ponzi's were more honorable.

Starting point is 00:56:31 What do you mean by that? Remember, you know, there were some pretty sophisticated games four years ago, right? Where, you know, there were these experiments where people would like stick their money and then the first person to take their money out would lose some percentage and though you'd have to hold your coins in the system for longer than everyone else. Or you'd have these games where if you're the last person to touch the thing before no one touches it for 12 hours, you get a special reward. And like it was just actually fun.

Starting point is 00:57:01 It was like transparent. Exactly. Everyone knew what they were doing rather than this fake thing. Yeah. So the game I'm pretty sure you're referring to is called just game, just dot game. I think it actually migrated to Tron because Justin's son paid them to. But it was very explicitly like a Ponzi. It was a Ponzi game.

Starting point is 00:57:21 But huge emphasis on the word game. It was a casino game that would be a great and awesome and fun casino. game and it made no intentions on promising any sort of outcome if you lost. And I think that's what you're talking about, Vitalica, it was more honorable in the sense that, like, no one is like, if you partake in it, like, that's on you if you lost money. Exactly. Whereas the new stuff, it's like, there's a lot of obfuscation. Like, there's often even layers of obfuscation going on.

Starting point is 00:57:51 Like, there is obfuscation against VCs, obfuscation against regulators, obfuscation against token holders against early participants and late participants. And sometimes it's this kind of layered game where like, oh, everyone understands that this thing refers to this thing. And, you know, you have these arguments about like, well, why it has to be this way. But then the problem with doing things in that way is that it basically creates no way for good projects to distinguish themselves from things where the thing that they're obfuscating is that their entire project disappear in scheme.

Starting point is 00:58:23 and like the good side of what emerged in 2021 basically turned out to be unsustainable and ended up just kind of like slowly offering lower and lower rates over time. And the bad side of what launched in 2021 just ended up blowing up completely, right? So in both cases, it was over-optimistic in terms of what it promised, but, you know, some of it degraded gracefully and some of it degraded very not gracefully. And so what I want to go back to is just more doubling. down on and refining the kind of fewer but really important ingredients that we have already known for quite a few years are actually really valuable and importance to people. So you are still bullish on simple, defy, complicated defy, not so much. Can we go back to kind of the money for a second? And just maybe from somebody who's outside the crypto industry's perspective, like, why are you still

Starting point is 00:59:15 excited about the money use case in general? Like, why do we need crypto money, Vitalik? Like, digital money, a central bank digital currency could do that, right? We could scale out what PayPal's doing or, you know, some other kind of, aren't you just talking about digital money? Why is this crypto money different or important? Well, I personally have used, like, cryptocurrency as money huge numbers of times over this year, right? And like for me, the use case basically is like medium scale investments and charity donations, right? like, you know, just sending a couple hundred thousand dollars to some charity that's, you know, giving money to poor people or supporting healthcare in Africa or somewhere like that, just like quickly routing money to medical organizations that are based in all kinds of countries, investing in startups. These are all cases where cryptocurrency is actually significantly more efficient than the existing banking system.

Starting point is 01:00:17 and like I don't think that it's temporary. Like I think that there's structural reasons why cryptocurrency is better at surviving as a frictionless international thing than are going to like via traditional banking systems do. And so I think it's actually is an open question whether or not CBDC is even will be able to compete against that in that same way. Right. Like if, you know, China launches DCEP and does a really good job of it, then like that could easily get. a lot of adoption in China, but would people be willing to use it in Vietnam or Singapore? I don't know, right? So whereas cryptocurrency is a thing that actually has like this very international reach already

Starting point is 01:00:59 even today. It's kind of in a way trying to fulfill a very similar goal as the Esperanto language, which is like, you know, F every single nation state currency because of the borders. But let's make a brand new currency and everyone can use that instead. Exactly. Right. Like from the point of view of a country government, having 10% of your national economy suddenly be carried out in cryptocurrency is much less scary than 10% of your economy suddenly being carried out in US dollars, right? Because in the second case, the U.S. government has power over you. In the first case, it doesn't.

Starting point is 01:01:34 So there definitely is this structural aspect where because of its neutrality, cryptocurrency has an advantage that fiat currencies cannot have, right? And like there are countries that have a reputation for neutrality, but the problem is that all the countries that have a reputation for neutrality don't have scale. Once a country has scale, it starts to have interests. If they do have neutrality, they get eaten up by the countries that don't have neutrality because the countries that don't have neutrality have the larger armies. Exactly. Right. Or potentially just like the larger economies and the larger will to kind of bully them to tickling along with the local block. I mean, these are things that happen all the time.

Starting point is 01:02:11 Certainly. Right. but that's just me, right? So, like, I interact with lots of people around the world, but I, you know, I'm still ultimately a well-connected rich country person. But then if you go out away from that and you go to, you know, all kinds of places in Latin America, Africa, Middle East, Southeast Asia, and those kinds of places, like, there the financial system is often not even well-connected to rich country financial systems. Like, often enough, cryptocurrency just is by far the easiest way to send money home to people's families. Cryptocurrency can be even the easiest way to make payments. It could be the easiest way to save money that is much more guaranteed to not, you know, drop by, like, a factor of two every year for pretty much forever, right? Like, there are a lot of places where existing fiat currencies are very unstable and

Starting point is 01:03:10 existing Fiat financial systems are very unconnected and where, you know, the banking system doesn't necessarily even wants to connect it, right? Like, basically because there's just almost no incentive for them to. So those are the kinds of places where I think cryptocurrency just has clear use cases even today and where I expect it's more valuable to succeed in the long term and where if you go to the places and you, if you go to the places and you you go to the meetups and you talk to the people, the culture there just feels much more genuine and more real, right? Like, it's not talking about these kinds of issues.

Starting point is 01:03:48 theoretically, it's, you know, you have people saying like, hey, I'm from this country, and in my country there actually was a hyperinflation. And because I was able to put money into Bitcoin and eth, I was actually able to protect my savings. And like, these are actual experiences that you regularly hear from people there. Right. And I think a culture that is animated by,

Starting point is 01:04:10 those kinds of goals, it's just much healthier than a country where the thing that it's animated by is like, oh, look, I have a $36,000 dollar monkey, and that's my pass to get into some kind of elite New York City nightclub. It's like, if I were to go to a New York City nightclub, I'd almost want to, let's see, what would I want out of a New York City nightclub? One is that I would want it to open at 4 a.m. instead of closing at 4 a.m., because I think people who have the discipline to wake up in the morning or possibly possibly more interesting. I would want to possibly exclude people who have a monkey that cost more than $30,000. Or, you know, pretty much the exact opposite of what the New York

Starting point is 01:04:53 City Monkey Scene is doing right now, right? So, you know, you're just not going to get a great culture when you have people that just don't have problems for themselves personally that cryptocurrency can solve other than getting rich off of other people's problems, right? And so have, like, the cryptocurrency communities that are best, I think, are the ones that are not in that position. And, like, developing world is one example. And then I think another good example is, like, developed world, but, you know, the more, like, activist scene or, like, you know, certain, like, you know, industries that get deep platforms by banks and payment systems all the time and those kinds of things. So, you know, like, those kinds of places are the places where I actually expect the most. interesting work to happen over time. And those are the places that are in a lot of cases using blockchids and cryptocurrency already. And I think the main challenge there is that today, a lot of the time, people are using cryptocurrency by interacting with finance accounts. And it would be ideal if these people had more decentralized options available to them too.

Starting point is 01:06:03 And that's one of the reasons why I'm really excited about the social recovery wallet and smart contract wallet and account abstraction ecosystem. You know, why I'm excited about layer two technology to bring fees down and, you know,

Starting point is 01:06:19 excited about privacy technology and all these other things. I want to hop back over to the defy conversation before we tie a bow on the money and defy conversations and move on to the identity conversations. But on the defy conversation,

Starting point is 01:06:31 to me, we're in this limbo period where we don't really know if there's going to be a Cambrian explosion of Dow's, a brand new wave of defy apps. And one of the things that Ryan and I would previously communicate on the bankless podcast is that, you know, the application layer, the defy layer is always kind of the frontier. Well, there's not that much room for layer ones and layer two's out there. Like there can't be as many blockchains as there are applications. There will naturally be more applications than there are blockchains. And like kind of a large part of the wealth generation of the protocol layer is not like completely over, but we've gone through that adoption wave. Like Ethereum is half a trillion dollars or maybe a quarter trillion dollars. And so, like, one of the things we've communicated is that, like, the application layer is where a lot of the wealth is left to create. There's a lot of wealth creation on the application layer. And so maybe you were too late to explore the rise of the protocols, but the rise of the applications will never stop coming, right? There will always be new applications on the frontier to explore. And that is where, that's why some of the concentration of wealth in Ethereum, I don't think is the biggest problem because the application layer is this natural diffusing mechanism, because new defy app,

Starting point is 01:07:40 new tokens, tokens go up and down, and a new place to establish wealth. But if I'm now kind of considering that there's actually fewer defy applications than there really needs to be in, instead of they're needing to be thousands and thousands of defy apps, there really only needs to be like 10 or 15 to really be comprehensive, now I'm starting to worry that like there is less churn and there is less opportunity out there. Do you have any thoughts or reflections on this? There's definitely less low-hanging fruit out there, right? And I think that's important to just recognize. And I think there's a huge amounts of opportunity, right? Like, if you can make a wallet that a billion people use, that's a huge opportunity. If you can make a stable coin that can

Starting point is 01:08:21 actually survive, you know, anything up to including a U.S. dollar hyperinflation. And, you know, dose for bid, the U.S. dollar hyperinflation actually ends up happening. Then, you know, that's a huge opportunity as well. If you can, you know, create something that can actually, you know, be a lifeline for everyone going through that situation. If you can get sign in with Ethereum's work and you can unseat Facebook and, you know, Google and Twitter as the kind of log in over the words of the internet, that itself is a huge opportunity, right? There are still huge things that are left on claims that still can be built, but they're harder to build, right? Like, you can't just build, you know, obfuscated casinos and get people to throw $13 million in and just have a fairly quick path

Starting point is 01:09:09 to victory. So that's the place where I think the space is in now. And I think the people that are going to be more successful are the people that are actually willing to put that kind of hard work in. Next on your list of applications that you believe in is identity. And there's a line in your article that I'd really like to pull out where you say, for a long time, I have been bullish on blockchain identity, but bearish on blockchain identity platforms. Can you unpack the difference between those two things? What's the difference between blockchain identity versus an identity platform. Sure. And so identity is a complicated term that refers to a whole bunch of different ideas, right? So the concept of authentication, just proving that the identity that you

Starting point is 01:09:53 are using to sign a particular message to post a particular message to send a transaction is the same identity that you registered at some point before, right? Even if it's totally pseudonymous, like even if it's a PGP public key, that is part of identity. At the station, I attest that, you know, David Hoffman and Ryanshaw and Adams are both participants in this thing called bankless. That's part of identity. The government of Canada attests that I Vitalik abut or am a citizen. That's part of identity. Domain names or dot-eath names like Vitalik.eath, also parts of identity.

Starting point is 01:10:31 Proof of personhood, proving that I'm a unique human and this is the only account that belongs to me in the system. That's part of identity, right? like identity is this very nebulous bubble term that refers to all of these things. And sometimes when people say they need an identity solution, they might be referring to any one of those or any combination of them. And those problems are very different problems and the problems that have very different properties. Like they have, for example, very different properties in terms of the level of sexualization they might require in terms of the extent to which the problems are social, the extent to which you can make a solution that works for a small number of people

Starting point is 01:11:10 that doesn't grow beyond that small number of people. And these are all actual use cases, and they're all specific needs that people have. But the problem is that for the last decade, I've also noticed, like, this very abstract blockchain identity discourse where there were people that have been intentionally trying to create identity platforms. Like, they're people that tried to create identity blockchains. And I'm, by default, and, you know, have been and still I am very not bullish on a lot of those, right? Because basically, they just trust, have the mindset of starting from the point of view of

Starting point is 01:11:48 identity as an abstraction, as opposed to starting from the point of view of a concrete set of use cases that people care about, regardless of whether or not they can later narrativize those use cases into being part of, uh, some grander space that they can call identity, right? It's like meme first as opposed to problem first. And problem first is the approach that I think is more viable there. And I think it's more viable everywhere. And I think Ethereum is the place where identity solutions, in the sense of solutions to all of these specific problems that I identify are happening and are pretty rapidly growing. I think part of your answer is that identity isn't something that you can go head first at.

Starting point is 01:12:30 you can't make an identity app. You can't have an identity startup. Identity is something that is emergent. It is something that is naturally composed from many different sources of inputs that may or may not be able to interoperate with each other. Is that a fair assessment? Yep. Cool. I mean, it almost has to be like a byproduct of the thing that you're building, right? Like in a certain way, like, why is there sign on with Google or sign on with Facebook? It's not because they started with the identity solution, but it's because Google made Gmail just so damn valuable in its app ecosystem. And so everyone has a Gmail account,

Starting point is 01:13:03 and now you can use that to sign in. I'm just wondering how you think identity solutions, again, we could have the Esperanto problem for just a microcosm of identity where we create all these great identity solutions. We're like, hey, world, come use it. And the world's like, we don't care. We'll just use English. It's fine.

Starting point is 01:13:19 How do you think identity actually happens as an export from the crypto world? Like, practically. How does this bottom-up emergent thing manifest. I think you had it exactly right in that whatever the thing is that gets the network effect has to get the network effect for some other reason first, right? One example that I think is good to zero in on is Ethereum wallets versus PGP keys, right? PGP keys have for a long time been

Starting point is 01:13:51 the number one, like, cypherpunk meme, right? Like, we have a cypherpunk world when everyone has a PGP key and when people could use this PGP keys to sign and encrypt messages to each other. And that's been around since what, like the early 90s? Yeah. People tried really hard to have key signing parties and attest to each other, and have PGP encrypted email, and even have all kinds of apps to make it easier, and all of these different overly layers.

Starting point is 01:14:18 But just none of them have really worked well. And what has worked well? Well, guess what? We have Ethereum accounts now. And what is an Ethereum accounts? while it's a private and public key pair. And so now, guess what? You can sign into stuff with an Ethereum key.

Starting point is 01:14:33 You can encrypt stuff to people's Ethereum keys with a tiny bit of extra work, right? And so you just get all of this immediate benefit that's only possible because you already have a user base of millions of people that have Ethereum wallets, which they got originally for basically financial reasons, right? Because they wanted to hold cryptocurrencies or do defyce. stuff and occasionally NFT stuff with it. So one question I have about this model. I think it requires

Starting point is 01:15:02 a significant amount of standardization across attestations and specifically the attestation side of things like Vitalik attest that Ryan and David do this bankless thing,

Starting point is 01:15:12 the country of Canada attest that Ryan was once a citizen there, sorry for Doxying you, Ryan. America attest that I'm a citizen of America. Spotify attest that I'm a huge fan

Starting point is 01:15:21 of the sheep dogs. How do we, do these things need to be the same standards? or how do we make this, the identity of all of these different attestations all composed together so that we have my identity rather than just like a bunch of disparate systems that don't really talk to each other? I think standards are one moreover time, right?

Starting point is 01:15:40 Like the Pope Protocol exists and lots of people use it. And Pope, I think, has so far been more successful within the Ethereum ecosystem than anything that calls itself an attestation protocol, right? Like they've, you know, actually gone out there. They have the network effect. lots of people have popes. I have dozens of popes. And, you know, the thing works and the thing is continuing to grow, right? So that's the, that's just like one example or something that I think is succeeding. I mean, I think there's definitely room for a couple of other things to succeed as

Starting point is 01:16:14 well. And then at some point, they're going to grow to the point where they have to talk to each other. And at some point, they're probably going to agree on like aligning cryptographic standards or something like that and hopefully we'll get to something reasonably saying. Why is identity in the crypto space a huge conversation? Everyone comes into crypto and they kind of get this vague semblance of an idea that like something about crypto has to do with identity. Then they learn about like, oh, my Ethereum address can represent me. But why is this better than my nation state identity? What is lacking in nation state identities that Ethereum or private key identities really brings to the table? Like, why is this not a meme and why is this actually a good

Starting point is 01:16:54 product. I mean, it solves problems that people actually have, right? Like, people, I think, obviously wants to have an identity in the sense of like just wanting to have an identifier, like a username that other people can use to talk to each other. Crypto, in addition to being a useful set of products is an ecosystem and a community, and people in that community want to talk to each other. So it serves that need to. People I think wants to be able to do stuff on the internet without that stuff being dependent on, you know, Google or Facebook or Twitter, like being able to do whatever they want with their account or even just like seeing all of the actions that they're taking.

Starting point is 01:17:38 There's just like clear value that I think speaks to things that people in the crypto space want to do and even to dreams that people outside of the, yeah, crypto space have had for a long time, right? Like this is, you know, making the internet more decentralized in a way that I think a lot of people have one or two for like decades at this point. And so I think it's in a great place to actually get that kind of adoption. I think one of the things that really excites people about identity and crypto and, you know, really Ethereum sign. This whole like sign in with Ethereum movement is that it's actually really easy to envision login with Facebook, log in with Google, log in with

Starting point is 01:18:13 Metamask or Rainbow Wallet or something. Is that the goal that we're looking for? Is that like when you said like the decentralization of the internet, is that one of the parts of the internet that we can actually decentralize with the theorem? Is that like the explicit vision that you kind of have? I think absolutely. Okay. All right. Well, Bankless Nation, you got your work cut out for you. Let's get this done. Look, man. I think, actually, I think on identity, this is going to be seen as a big win for nation states. While there's a portion of nation states who are a little bit like, don't step into the money thing. We have that covered. I mean, what kind of nation state doesn't want the bot problem mitigated on the internet and to help identify who the humans are and who the robots? And by the

Starting point is 01:18:49 nation's day answer to this is a social security number and a driver's license that you have to like end like a selfie come on not going to cut it that is not internet native at all so there's some low-hanging fruit here if we can do this but let's talk about dows for a minute vitalic so we think about dows the use case you said you're still bullish on them are dows going to replace corporations there's there something less that they will do why are you still excited about douse as an application and what function do you think they can fulfill yeah so ironically enough I think DAOs are well set to replace a lot of things other than corporations, right? Like corporations are actually one of the forms that I kind of specify that DAOs are less likely to be able to replace.

Starting point is 01:19:32 And the reason for that is that I think corporations benefit from the ability to pivot. And ability to pivot is like almost the inherent opposite of a certain type of decentralization than people really want. but also corporations are not, they are big enough that they can afford to set up a more regular infrastructure, like legal infrastructure and security infrastructure and so forth. And so they don't really benefit well from the other architecture, which is like, hey, let's just not bother with that stuff

Starting point is 01:20:07 and have a multi-sake of seven people, right? So my view is basically that, you know, there's two architectures that make sense. One of those architectures is like, let's quickly spin up a multi-sig of seven people. And the other architecture is, let's think really hard and create something that's very credible neutral, very able to resist all kinds of takeover attacks and use it to run really important stuff that we want to last for many decades, right?

Starting point is 01:20:35 Whether that's ENS or whether that's a stable coin or, you know, something like proof of humanity or something like Cleros. Like, let's figure out how to make that extremely. robust, right? So that's something where I think a Dow makes a lot of sense. And then the multi-sig of seven people use cases are use cases where I think something that you could call a Dow makes a lot of sense, right? But it's like a Dow where you're not really emphasizing the smart contract logic. You're emphasizing more the decentralization of just like very open and spontaneous collaboration patterns that can be very agile between fairly small groups of people

Starting point is 01:21:14 and the smart contract side of things is actually pretty minimal, right? So those are the two architectures that I'm more bullish on. Architectures that try to do something else I'm less bullish on, right? So, like, things like the original Dow trying to be a Dow that is a VC fund, like the more time goes on, the more I think, like, yeah, actually, that doesn't really make a huge amount of sense, right? In those kinds of cases, like, you're getting the disadvantages of decentralization, which are that you move slower and that you open up things that other people in a competitive

Starting point is 01:21:49 environment can use against you. But you're not really getting too many benefits from decentralization either. So like if you want to do that kind of VC fund, you just spin up a VC fund, right? Whereas, you know, a Dow for like, Maker Dow or a Dow for Proof Humanity or a Dow for ENS, like that's something where that kind of value makes sense. And then a Dow in the sense of, you know, a group of five, for seven people that just wants to like quickly collaborate without bothering what's a legal entity like that's also something that makes a lot of sense. And do you think Fatalik there's going to be

Starting point is 01:22:20 some innovation in the governance structure of Daos or do you think we've basically discovered all possible governance that could work with Daos? I think we need innovation. So this gets into one of the other topics I've been really big on over the last year, right, which has non-financialized governance, like governance that can resist a tax from like say 51% of the token holders or the token holders is getting bribed or those kinds of situations. And I even argue that it's the financial use cases where definancialized governance is the most important. Like if you look at a stable coin, for example, like MakerDAO, it has, I think, what were

Starting point is 01:22:56 the stats that I think I'd have been opposed to $7.8 billion of collateral. But the market cap of the maker token itself is like somewhere around $500 million, right? And so if Maker Dell really was governed by maker holders, in an unrestricted way, then you could just go and buy up half the maker tokens and then use that to manipulate the oracles and you could steal a huge portion of the collateral. And that would just be a really big and profitable multi-billion dollar attack. Right. Now, the reason why that hasn't happened to MakerDow specifically is because Maker Holdings are fairly concentrated and there's like maybe a dozen people that have more than half the total supply. And it just so happens that those a dozen people

Starting point is 01:23:37 are kind of fairly aligned on the vision and they're, you know, either honest or at least they have enough other interests that would be really hurt if they did something like that, right? But in the long term, that's not the sort of thing that you really wants to rely on, right? And so I think it's obvious that if you want a stable coin that scales, the collateral has to exceed the market gap of the profit-taking token and probably by even more than 17x. But if you want to do that, you have to have some kind of governance that's not financialized or some kind of governance where there's some kind of intentional friction or speed bump that prevents mkr holders or the token holder of the system from being able to quickly implement whatever goal they want and take over the system as you're

Starting point is 01:24:19 talking about all of this i just want to you know remind listeners to a bankless mental model that at least help me think through this and this is like from games like civilization that maybe some of you have played where you have this concept of as you're leveling up your civilization you have like a tech tree right and you have to learn the basics of like mathematics before or many generations later in the tech tree, you can build nuclear reactors with your civilization or launch someone to the moon. Like you need your math before you get your physics, before you get your nuclear reactors. And the question of people have outside of crypto is like, okay, cool, you've been talking about this forever. How come you haven't done it? Well, think about

Starting point is 01:24:54 the tech tree, right? You sort of need the money, defy use case in order to build the network effect for identity to be valuable. And then once you have identity, you can start to tweak governance, because some of the non-financial governance cases that you just mentioned, really aren't very possible without identity and knowing who's a human who's not on chain. And so this is all kind of a big Ethereum tech tree that we're kind of building out in peril. That's what this reminds me of anyway, which lends me to kind of the last piece of what you wrote, Vitalik, this category for hybrid applications. What are hybrid applications? Can you just like tease that out for us for a minute? Hybrid applications are applications that are not in

Starting point is 01:25:34 entirely on chain, but that benefit from being connected to a chain, right? So basically, think of it as centralized services that use the chain and commitments published to a chain as a way to constrain their behavior and keep the system honest. So the nice thing about hybrid applications is that they, I mean, obviously scalability challenges basically don't exist with them, right? as long as you can make ZK Snarks that are powerful enough, you can make some of these applications already. So scalability challenges don't exist. Privacy challenges are a lot smaller,

Starting point is 01:26:12 especially if you can trust the provider, and sometimes even if you can't trust the provider even. And the deployment challenges are much simpler because in a lot of these cases, it's not even something that requires changing the workflow of the user. It's like purely an overlay that runs on the side, and only people who wants to interact with the overly have to, right? So probably the simplest example of this actually is making centralized exchanges

Starting point is 01:26:38 safer with proof of solvency protocols, right? Like if you have exchanges that actually, you know, publish commitments to, say, all of their user liabilities, and then they have assets on chain, and by having assets on chain, they're proving that they actually have the assets that match the user reliability is like that is an example of an application that does use the chain and even use this cryptocurrency, but it is also a centralized application. And that application could keep the workflow of being a centralized application, but still get a lot of benefits from being hooked into and kind of being shackled by the decentralized system.

Starting point is 01:27:17 Games are another example. You can have game servers that post-the-state the chain using zero knowledge proofs, and that basically binds them to actually follow the rules that they committed to. The Dark Forest game, right, is probably one example of this. Voting I mentioned as an example, and there's many different kinds of voting, even going all the way down to something as simple as like Twitter polls, for example, right? Like you could imagine a blockchain-based Twitter, like Farcaster say, yeah, an Ethereum-based Twitter, like Farcaster, make a poll where you use one of these fancy voting mechanisms to vote in the poll, and the voting is totally private. The voting is even coercion resistance. And that's also hooked into popes. And so you can limit the poll to a certain group of people.

Starting point is 01:28:06 Right. But then, well, Farcaster is like, I guess, not quite a hybrid application because Farcester is aiming to be a decentralized system. But, you know, you could imagine something kind of centralized, like also plug those kinds of components in. Right. And so you get kind of the efficiency of centralization. and the robustest benefits of decentralization at the same time, right? So I think there's a really huge number of applications in this category. Like, on some level, almost anything can be improved by requiring it to submit roots to chain and requiring it to be open about when it changes its rules, right? And that's just something that you can just like go and add on. And, you know, it might not have benefits at first, but it might have benefits that appear years down the line. and just the cost of doing it is in the long run so low that I think there's a bunch of applications where it makes sense.

Starting point is 01:28:57 Yeah, I actually haven't really spent too much time thinking about this, but this is actually really kind of mind-blowing in the sense that it's actually doing some of the things that we're already doing in other parts of the Ethereum landscape. Like, what do layer two's do? They post data to the Ethereum layer one that forces the layer two to play by the rules, right? And this is kind of the same model for what you're saying. You can see so many other use cases. What is proof of reserves? It's a centralized company that's not really changing much else about this business, but it's posting data to a public blockchain that allows people to check on itself. And so you're just saying that the general purpose, utility of centralized companies, centralized teams, centralized projects, whatever, can just publicly post data to a chain that allows humans to check on whether or not that company or team or whatever is doing the thing that they originally committed to doing. And really what is the original, like, ethos, of a blockchain to begin with, the whole idea of a chain, a blockchain, is to like check on human folly, right? Make sure that humans are not being bad and being able to verify that.

Starting point is 01:30:00 And I think the flexibility that this model offers, which is just like, hey, you have a centralized company that requires human trust, well, you can prove that trust with a blockchain. is like probably, I think, the most broad utility, broad way to provide blockchain assurances to the world that I can really think of. Yep, absolutely. That's their goal. So the broader question, I think really the reason how that will actually end up is just like at some point, the companies that do this are just have a competitive advantage versus

Starting point is 01:30:29 the ones that don't. That's like perhaps like the capitalism market forces argument for why this will happen. But I want to kind of zoom back into the near term and also go into one of the last sections in your article Vitalik, which is, how do we get there? And then a quote from your article I want to read is that the Luna Market Cap got over to $30 billion, while stable coins that were striving for robustness and simplicity are often ignored for years. Non-financial applications often have no hope of earning $30 billion because they do not have a token at all. But it is these applications that will be the most valuable for the ecosystem in the long term, and that

Starting point is 01:31:04 will bring the most lasting value to both their users and those who build and support them. This paints this picture that all these flashy scams, like the lunas, the Wonderlands, FTCs, will always get more attention and more adoption than like these boring, hardened, basic primitives that, like, crypto so desperately needs. And so this kind of lends itself fatality to like one of my existential crises I've been having recently is that, like, crypto might actually not be good in the short term. because it takes longer for these hardened real protocols to get built out. Meanwhile, we can generate like 10,000 APY Ponzi's along the way for three bull markets in a row. Do you think that this illustration of crypto is true? And how do you suggest that we accelerate the good things that we can take and show our moms? This is where we get back to one of my points a bit earlier, right?

Starting point is 01:31:59 Like, we have to recognize, you know, our own agency, right? like we yeah i think all just needs to work much harder at um you know both doing all that we can to help those applications um and doing uh doing less that we can to help applications that even if they look shiny in the moments are not actually all of all that meaningful long term um you know just uh being willing to get excited about stuff other than making huge amounts of money um as the organizations in the space can do much more to explicitly support some of those projects, right? Like even just giving like a few million dollars worth of grants to people who are honestly trying to make wallets that properly solve the self-custody problem, right?

Starting point is 01:32:52 Try to get to the point where like how hard you have to work to get funding as a wallet developer is like at least comes close to approaching how easy it was if you were just running a DFI. project. It's just also just talking about some of the gap problems that these projects are solving and why it's so important to solve them. I think it's the best that we can do for now is a combination

Starting point is 01:33:15 of all of those things. Another important thing that I think is important for the space to do is like continue the conversation with regulators and not just in the United States, but you know, regulators around the world. I think it's important

Starting point is 01:33:31 to get out the message that what we as the Ethereum space want is not even necessarily a regulatory environment that's friendly to everyone, but a regulatory environment that satisfies the requirements of being maximum friendly to, like say, people building account abstraction while

Starting point is 01:33:49 it's working on zero knowledge proof protocols, but without being friendly to Duke one, right? And like, what does that even look like? It's another one of the conversations that I think is worth having and trying to figure out, right? Because I think at this point, you know, well, the political appetite to make an environment that's friendly to Duke one is like definitely close to zero at this point,

Starting point is 01:34:12 right? And so I think it's, you know, importance to kind of take the lead in the conversation of like how to be friendly to, you know, people making account abstraction wallet specifically without being friendly to Duke one. And that's, it's a more difficult one. And that's definitely something that I'll keep thinking about too. Yeah, I completely agree. By the way, I'd love to see a Vitalik regulatory post some time on Vitalik.com. I think that would be a cool post. Vitalik, thanks a lot. We appreciate you coming on and talking about all these things.

Starting point is 01:34:41 Maybe just sort of final question on a little bit of a personal note. I'm just curious for you. So we are ending 2022, entering 2023. It's been a big year, certainly, for Ethereum, a lot to be excited about at the end of 2020, shipping the merge, all of these things. But what do you see your role in crypto as, as we move into 2027? 23 and beyond, you know, the old office space. What is it that you'd say that you do here, Vitalik?

Starting point is 01:35:08 Like, what's kind of your role? How would you describe yourself? I feel like the answer is still some of everything, right? Like, I think that might change over time, you know? That might be other things too, right? But for now, you know, it's definitely some combination of, like, increasingly trying to help projects that I like that are building good applications succeed and, you know, helping to explore and understand the application space better.

Starting point is 01:35:35 You know, still a lot of important Ethereum protocol stuff better and, you know, participating in the discussion on like scaling, trying to kind of push the EVM in a good trajectory. So it gets, you know, functionality that people want without getting the complexity that people don't want. trying to, I guess, continue to interact and connect with the various Ethereum communities around the world. I've made it a goal next year to spend some time visiting places that I have historically not spent much time visiting. I mean, that was my goal for this year, too, right?

Starting point is 01:36:12 And I did end up spending, you know, months in Latin America. But I don't know, next year, other places too. So that's like, you know, right now definitely some of everything. and some of just like letting other good people continue doing great work. And I guess helping the Ethereum ecosystem move over to being this and like a very stable and self-supporting thing that just keeps going forward on its own. Metallic, are you really trying to turn gas into mana? Is that really a thing?

Starting point is 01:36:43 It's a good question. I mean, so, okay, so I have thought. I was going to ask, what do you think the odds of your ability to do this is? I have thought about this, right? And I think, like, the one place where we could do that is in the context of multidimensional EAP-1559, right? This is the proposal where, like, instead of having just one gas limit, we have one limit for computation, and then one for, like, data and one for, I mean, maybe storage operations. Like, one of the dimensions could just be called mana. And, you know, I think that would be cool and fun.

Starting point is 01:37:12 I like Ethereum being fun. But if it's going to be anywhere, that would be the place where it is, but we'll see. That's awesome. Wait, was there a World of Warcraft? Was Manna a thing in World of Warcraft? I don't remember my wild days. Yeah, yeah, manna is like the primary, like, limited resource for like anyone using magic. This was the game all along. Vitalik wanted to create mana in this decentralized ecosystem, all the way back to his nerfed World of Warcraft character. It's come full circle. Indeed. Like, you know, you have Ethereum, you have soul-bound tokens. We're getting closer. This is a Diablo Maxi podcast, by the way, that you're on right now.

Starting point is 01:37:48 Yeah, it's true. It's true. You've got to confuse. Got it. Still Blizzard, though. Same company? Used to be. Vitalik, thanks a lot. We really appreciate it. Yeah, no, thank you guys too. It's been great. Action items for you, Bankless Nation. Another fantastic Vitalik podcast. We've got a few more from the archive. We'll throw links to those in the show notes. Also, you've got to read, what in the Ethereum application ecosystem excites me by Vitalik. We'll include a link in the show notes. There's also another article I want to draw some attention to. It's an article that was posted earlier by the time you listened to this last week. from Astral Codex 10. It's called Why I'm Less Than an Infinitely Hostel to Cryptocurrency. Why I'm less than infinitely hostile to cryptocurrency. I think a great article from an outsider's perspective

Starting point is 01:38:30 looking into the space and very rational as to which use cases have succeeded. So go read those and that's it. Got to end with this as always. None of this has been financial advice. It never is on bankless, of course. Ethereum is risky. You could lose what you put in, but we're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - 149 - Ethereum in 2023 with Vitalik Buterin

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