Bankless - 21 - Ethereum: Past, Present, Future | Vitalik Buterin

Episode Date: July 13, 2020

Episode: #21 July 13, 2020 Ethereum turns 5 on July 30th! That's 5 years of history. Five years of progress. Time enough to change the world? We sit down with Vitalik Buterin and walk through Ethereum's past, present, and future. Has the vision changed? Has ETH earned its price? What about monetary policy? How's Vitalik feeling about the future? Is ETH a triple-point asset? It seems clear that Vitalik believes the Ethereum community is its strongest asset. This band of Athenians isn't just here to vanquish foes, it's here to build a digital civilization for the world. Not burn it down. Build it up.  Vitalik believes crypto is standing strong as one of the few remaining things that's genuinely international. And as we witness the balkanization of the digital world, the open door to cooperation that Ethereum provides is exactly what humanity needs in order to thrive in the 21st century.  Happy 5th Birthday Ethereum! The world needs you now more than ever.  We cover: How Vitalik's feeling about Ethereum PAST: Times when Vitalik was far less optimistic Has Ethereum matched the original vision? Identity in an independent digital civilization PRESENT: Does Vitalik like or hate DeFi? Vitalik's biggest concern for DeFi Thoughts on liquidity mining The goods & bads of speculation Have we earned the price? FUTURE: 3 problems we face now Spartans vs Athenians - who wins? Is Ethereum a nation, a religion, a technology? How Etheruem is like Briton  ETH THE ASSET Is ETH a triple point asset? Solidifying ETH's monetary policy LIGHTNING ROLLUP ROUND Gas fees are too high? ETH flippening BTC? Low hanging fruit? HIs favorite ETH killer? And more... Join us next Monday for a fresh episode! ----- Tools from our sponsors to go bankless: Rocket Dollar - tax shelter your crypto ($50 w/ "BANKLESS") Ramp - the fiat onramp for DeFi (mention Bankless!) Monolith - holy grail of bankless Visa cards Aave - money lego for lending & borrowing ----- Resources discussed: The Ethereum whitepaper Roadmap for Ethereum Ethereum's monetary policy (it's underrated!) ----- Episode Actions: Review Ethereum timeline (up to 2019) Listen to our fave episodes on Ethereum 3 - Economic Bandwidth 4 - Ether: The Triple Point Asset 7 - Ether’s Value Mechanisms  20 - The Ethereum Opportunity | Chris Burniske Give us a 5-star review on Apple iTunes! Also...subscribe to Bankless YouTube to watch State of the Nation every Tuesday. ----- Subscribe to podcast on iTunes | Spotify | YouTube | RSS Feed Leave a review on iTunes Share the episode with someone you know! ----- Don't stop at the podcast! Subscribe to the Bankless newsletter program Watch Bankless shows and tutorials on YouTube Visit official Bankless website for resources Follow Bankless on Twitter Follow Ryan on Twitter Follow David on Twitter ----- Not financial or tax advice. This podcast is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.  Do your own research.

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. David, we've been waiting a long time for this episode. It seems like, well, 20 episodes, I suppose we've been waiting because this is episode 21. We have Vitalik Buteran on the show. What did you think about this?

So banklessness is a journey, right? So it's a journey that we're all going on together. And I feel like the last 20 episodes were really our collective prep work for what we wanted to ask Vitalik. And so we kind of bucketed this conversation into a couple different camps. We talked about Ethereum, past, present future, ether, the assets. And then we had a pretty fun roll-ups round at the very end. But really what collectively we were trying to get at. And we asked him directly this question. which I enjoyed his answer, and I'll leave that teaser there. But really what we're trying to get at is like, what are these systems collectively? Like, when we have like the bankless nation and we have the Ethereum blockchain and we have defy and then we have the community, we ask questions around all these different topics. And so it's really a conversation that hits the different points of what these systems are from different angles. And so that's what I really enjoyed about this conversation with Vitalik. you know, he asked a question at the very beginning, and we didn't get a chance to answer his question

in the podcast, but I'd love your answer now, David. So his question was, would Ethereum be okay now if I left? It wasn't the case probably, you know, four years ago, but would it be okay now if I left, I being Vitalik? What's your take on that? Yeah, so Ethereum's still in like beta, right? I think that's the right way to view Ethereum 1.X, even though we are doing just a massive amount of economic activity and people's lives are being changed with Ethereum 1. We're still in beta. And, you know, people criticize me whenever I say this on like POV Cryptopod or elsewhere, but like, I trust Vitalik. Like, I trust him. He seems like a trustworthy guy.

And so while these systems are supposed to be leaderless in this current Ethereum 1X version, the beta version of Ethereum, where we have. have this guy who is obviously intelligent and obviously has the best interest of Ethereum at heart and is pragmatic in the way that it is both good and bad for the world. I'm glad that Vitalik is here. And so while if Vitalik left now, I think Ethereum would carry itself into the future perpetually, it would be slower. And having that leader where we can rally behind, I think is still valuable in the present version of Ethereum. Now, I also hope that changes. And I think Vitalik hopes to that it has already changed,

but I hope it changes and completely finalizes an independence from any one single person when Ethereum 2.0 is rolled around and completely matured. You know what reminds me of is, maybe this is because I just watch Hamilton, but it reminds me of like George Washington, right? kind of the general that led the early republic in the beginning and took a first term as president, but then stepped away.

And some people wanted to make him a king, but he stepped away and let the republic govern himself. I think that's what Battalic is doing in a way is he's gradually been sort of stepping aside and letting other leaders, letting the community kind of fill the gaps of his leadership. and that's been on a steady trend since, you know, 2015, eventually, I think he'll just step away from this entire thing. Like you, I think he's sort of a George Washington character in that he's not here to set himself up as king of anything. He wants to see the success of the Ethereum nation and the Republic, essentially. And, you know, I think it would be in a much better place if he stepped away now than it would have been previously, but his leadership is still super useful now, as George Washington's was

in the early days of the United States of America. Yeah, and he also has other interests, too, right? Like, he doesn't only work on Ethereum. And I think there's been a more and more emphasis that Vitalik has started to expand his interest into other realms. We didn't really get into that on this episode. But if you follow Vitalik, he's an avid member of the Radical Markets Movement. And there is obvious intersection there between Ethereum in the radical markets community, but it's also separate. And so I think when Ethereum 2.0 rolls around, like he'll still be present, but I think he would largely, his interests have largely, would have moved on to perhaps building something on top

of Ethereum, but not Ethereum itself. Yeah, absolutely. And I think this was a key time to get Vitalik on the Bankless podcast, too, because it's going to be Ethereum's fifth birthday on July. 30th. So this is five years. So you talked about Ethereum being in beta. In human years, Ethereum is just a toddler. Like it's just learned to walk and now it's getting ready for some preschool. But it doesn't know a lot and it certainly hasn't grown into what it is going to be as an adult. So, you know, I think you'll find in this conversation that Vitalik realizes that and a lot of his conversations were about a lot of

lot of the conversation was about how Ethereum grew up, what its values are, what the future looks like. It's really a fantastic mind that we're speaking to, and it was a fantastic conversation. So we hope you enjoy it. Now, before we begin, we want to talk about our sponsors. As we all go westward, we need to get our values into the crypto world, but hopefully escape the tyranny of centralized rent-seeking institutions. And that's where Monolith can help you get your values. you into the crypto world while skipping over the crypto banks.

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the Bankless podcast today. Vitalik, it's almost Ethereum's fifth birthday. How are you feeling about things? How are you feeling about Ethereum? I feel like it's come really far. I feel like the Ethereum of 2020 is much more mature and kind of much bigger and very different in just so many ways from Ethereum as it was even two years from now, let alone what it was back in a two years. 2015 when the project first launched. Like, what Ethereum was just first starting in the project is maybe less than one year old. And, you know, there was the Ethereum core team. There were the Ethereum developers.

Ethereum research was largely myself of Vlad and Gavwood. And there were things happening, but there were fewer things happening. And you could tell there were fewer things happening. And you could tell there were fewer things happening just by looking at the kinds of things that we will get excited about. Like, just Microsoft announcing that they were doing things relating to the Ethereum ecosystem was just so amazing to hear for the first time. And now that's the sort of thing that we just hear every single month. From the technology point of view, I think just a huge number of things have come so far. So like for example, on the research side, you know, maybe five years ago,

research felt like a very open field in a lot of ways where we just didn't really know where a lot of the paths that we were taking would lead and what other paths exist. But in 2020, like it's definitely not close to complete, but it feels like a lot of the territory has been explored and it feels like we kind of have the map roughly laid down. So one example of this is, in proof of stake, for example. Like, we figured out how to combine together the benefits of chain-based proof of stake with

a more traditional proof of stake based on PBFT-like algorithms with the two-thirds thresholds. We figured out how to do a CPC, Casper. We've figured out a lot of the economics around things like weak subjectivity, things like how to optimize a lot of the economic incentives, results in terms of. terms of what we can and what we can't do. On the layer two side, we kind of understand how state channels work. We understand how plasma works. And we understand how roll-ups work. And we kind of have an understanding that those are basically the only three categories that can exist, which is kind of amazing. And we have an understanding of, you know, what are the precise

properties of each category, what are the limits of each category. On the development side, and, you know, ETH 2.0 is no longer just kind of thoughts that keep on getting renewed every three months. It's a code that's been implemented and that has an active test net, at least for the proof of stake side that I actually think is the bulk of the complexity. On the layer two side, you know, it's not just ideas. We actually have loopering and we actually have ZKSync. And we have OMG plasma that's, I think, on a test that I didn't go live very soon.

Could be wrong. I forget the details, but definitely kind of did an excellent job of rising from the grape after it seems like a lot of people kind of forgot about it for some time. There's, on the optimistic roll-up side, things coming out soon. Privacy is much better. Zika Stark Research has just come forward, leaps and bounds. And the Ethereum community has done, I think, a great job of kind of cooperating with the and zero knowledge proof

and academic cryptography is based on that regard. And you know, now we have the pre-compiles that we've had since Byzantium for the last couple of years. We have actual running privacy preserving applications like tornado cash for example and things like Aztec.

Just the theory around how to make a synarchs and starks just made a huge kind of hockey stick like leap forward somewhere in the of last year when things like Polonkin polynomial commitment kind of base system started to come out. So it feels like technological needs to be making huge progress on every point.

In terms of the community, and I feel like Ethereum is far more independent of myself, for example, than it was five years ago. Like, I mean, I'd be interested to hear kind of your opinion of, like, you know, how much would Ethereum have suffered had I disappeared five years ago versus, like, if I were to disappear today, or even two years ago. Also, the Ethereum ecosystem has gotten much more independent of even the Ethereum Foundation. So now we have a lot of these other very established companies that are building clients, building applications, just building and doing a lot of things. There's a lot more kind of independent voices in the community and even projects like

Heath Hubber, one good example of this. So lots of progress on all fronts. I feel no longer worried that Ethereum is no longer going to be around a year from now, you know. You also, Vitellic, sound pretty bullish, pretty optimistic about things in your answer. And has that always been the case? Have you always been just as optimistic as you are right now? I feel like there's definitely been times historically when I was much more worried. I was much more worried in definitely the first half of 2014 when it was not even clear when the sale would happen. I was much more worried pretty much through the first half of 2015 when the test nets were taking a really long time. and, you know, I was, I remember through April, May, in the first part of June, I was kind of sitting in China and visiting the Chinese community for quite some time.

And people were just wondering, you know, hey, okay, Ethereum's cool, but when's the thing actually going to be released? Once's the thing actually going to be released? And then, of course, it got released. But then through the second half of 2015, I was really worried because I was just concerned the Ethereum Foundation would run out of money before it would be able to actually finish anything interesting. Throughout 2016, the Dow fork definitely scared me a lot. So end of 2016, the DOS Wars scared me a lot. I mean, the price kind of dropping down to like $6 or $7 briefly scared me to some extent as well. And there was definitely a time there when it felt like Ethereum might just get forgotten.

So I've definitely felt scared a lot, but I feel considerably more confident than I did at pretty much any point in Ethereum's history. So, Vitalik, that was an insanely holistic sit-rep of the Ethiopian. Ethereum ecosystem now. And we kind of want to go in this past, present, future path in this podcast. So starting with, you know, the past, back to 2014, 2015, how has the current state of Ethereum lined up with what you could imagine it to be back then? Like when you were writing the white paper, before the Genesis block was mined, what did you think Ethereum would produce for the world? And how much or how little has that lined up with reality? Well, it depends on when, right? Because at the beginning of 2014, end of 2013, the vision for Ethereum was definitely kind of very broad. And there wasn't like a very specific set of things that I definitely wanted to have happen. And it was jumping around a lot. And, you know, at the end of 2013, I was talking about DAOs. And I wrote that three-part series about DAOs in the Bitcoin magazine. Then the idea for Ethereum itself, kind of a really, a real idea of

originally evolved from basically a set of patches to master coin, which was a protocol for the thing that in 2020, the cool kids called Defi. So it was, the focus is definitely ended up changing. And there was also some time when I was really excited about like decentralized Dropbox type protocols. And then, you know, naming systems, stable coins. And so the visions definitely kind of jumped around a lot, but it feels like most or all of the things that I was excited about happening on Ethereum six or seven years ago actually ended up happening or at least being tried to some extent. So Vicalik, there's this meme about Ethereum being kind of a world computer. And critics of Ethereum will say, look, it's not a world computer. It doesn't do storage. It doesn't, you know, it's not fast enough to be a world computer.

Can you talk about the world computer narrative? Like, was that the right narrative for Ethereum? You know, or like, what's your take on that? So I think a lot of people misinterpreted what the phrase world computer was supposed to mean. Like, the intended meaning was not a computer powerful enough for the world's needs. the meaning was a computer that the entire world has immediate access to. And the intention was that, you know, for applications where the entire world needs to see the process and see the outcome, you would do it on the world computer, but there would be lots of things that do not have that requirement, and so you would do them on all of the other computers

that exist today. Now, obviously, a lot of people didn't interpret it that way, and I think it's very reasonable to argue that if you create a meme and that meme gets a misinterpreted to hell by everyone, then that meme was a bad meme. So that's totally fair criticism. Do you think there's something to the meme of Ethereum being a world settlement computer, at least, or some kind of a world coordination system, a public good for property rights? Maybe. So one of my kind of causes for a bit of hesitation around some of those kind of finance-oriented terms, whether it's like settlement or even property rights, is that there's a lot of non-financial use cases of the Ethereum blockchain. So even ENS, for example, and you could argue that, you know, the transfer of an ENS name is technically a kind of settlement, but. generally people in the domain namespace don't really use that term.

Like that term is more specifically a finance thing. And there's applications around, you know, account management and, like, reputation and, like, certificate registries and all of those things that don't even have to do with property rights at all. And I want to, you know, the idea that Ethereum is a platform for all. of those things too. So I feel like designing the narrative of what if you am fundamentally is as being like entirely around finance could kind of risks marginalizing those other use cases. And World Computer, in one of the reasons why a lot of us liked it is definitely that it's much more accommodating of those things. But then I guess you could argue that it kind of runs into the

opposite flaw, which is that it under emphasizes the financial use cases. And it's not clear how, you know, a computer is relevant to kind of creating the next world economy. So I don't know. I think, you know, Ethereum's narrative is ultimately pro-list and there's no single slogan that does an excellent job of capturing what it's about. So I would like to make the argument that while there are plenty of non-financial use cases of Ethereum, those non-financial use cases still are like financial adjacent, right? So like in ENS, the name space system on Ethereum really is just allowing or could just be viewed as a system that allows for finance to just go better, right? Like send me die to David Hoffman. That's just way easier.

And any Ethereum that uses a system as like a land registry, still using Ethereum as like a value settlement systems, right? And so I would still present the argument that the L1 chain is still going to be like the financial layer. And perhaps the less dense, the less weighty economic transactions are kind of pushed off to the L2. Does that resonate with you or do you see it differently? Hmm. I guess there's definitely a lot of use cases that are financial adjacent. And I would say there's legitimate use cases that are kind of far enough from finance, that it's more reasonable to call them not finance than it is to call them finance.

I mean, even just one example of this that I sometimes talk about is like I talk about accounts with social recovery, for example, right? And how I think that a lot more people should be using like smart contract wallets with social recovery as a way of storing their crypto. And I actually think that this is a use case that could apply not just to holding cryptocurrency, but also potentially even as your kind of primary identity that you use to sign into websites. Right. Like I want people to have smart contract wallets that they use to log into, like even the centralized web platforms that are going to continue to exist. And I've been kind of increasingly bullish on this use case recently just because I've kind of

learned more and more that the existing sense. centralized and of access control and access recovery mechanisms are actually surprisingly terrible. Like, you know, you think that, oh, there's a company in charge, and so there's people that can help you kind of solve your problems, if anything bad ends up happening. But I just know so many people that have problems with, you know, Google accounts or Twitter accounts or whatever else. And the process of getting those accounts back is just a nightmare. And sometimes they end up not succeeding at all. And so if instead of having a single company control your identity, then, you know, your identity would be a smart contract. And that smart contract would have rules that say, you know, here are the five people that can kind of recover your account.

And then you use whatever cryptographic key that is stored in a smart contract to sign into things and you have the ability to change your cryptographic key inside the smart contract. So that's a kind of use case, which seems pretty far from financing. if you think about it that way. Now, I definitely do think that especially now those use cases are in the minority. And in the short term future, those use cases are going to continue being in the minority. And a big part of that is basically just because the transaction fees are high. And when transaction fees are high, finance is the only thing that's still willing to pay them. But in the long run, especially after we have things like roll-ups or sharding, or roll-ups and sharding, even, that equation could change.

So we'll see. On the topic of identity, do you think Ethereum will make progress on that, or crypto writ large, on getting good, even decentralized identity into these crypto systems? So what people call identity, I tends to try to split up into three separate problems. So the first problem is account access control. So basically, if I right now declare that, you know, I am Vitalik and I create some kind of Ethereum account or name or whatever that represents this identity, then I just want to have the ability that I in the future will continue to be identified by whatever system. I interact with as being retaliate, right? And if I choose to call myself Fred, then I'll keep being identified as Fred. If I identify as a three-legged toad, then, you know, the system

would still kind of continue to say that I'm a three-legged toad, right? So the point is not about kind of who you are in some real-world sense. It's about kind of persistence of identity. Basically that the actor that performed one action is the same as the actor that performed these other actions. And that's basically something I'm very bullish about smart contract while it's really improving on. The second identity problem is what I call the unique human problem, right? So basically just proving that some particular account represents a unique human. So it represents a human and not a robot and one human can get only one of them. or at least it's hard for a human to get a lot of these identities.

And this sort of thing is really important in applications like Gitcoin quadratic voting, for example. It's important in basically any voting system. It could also be useful as a form of anti-sibble and spam prevention. And there's a bunch of projects that are doing this. And I think Bright ID is interesting, for example. And then I know there's also all the centralized alternatives. So it feels like a Gitcoin is turning into a platform that it will just be forced to experiment with a lot of these things, which is really interesting. And then the third aspect of identity is basically proving or attesting to claims about other identities and them being able to prove that some attestation has been made.

So I want to prove that I am recognized by the government of Canada as being a citizen. I want to prove that according to this entity, I have some particular age or that according to this university, I graduated from them, and things like that, right? And those use cases are inherently centralized to some extent, so there's a limit to how much you can decentralize them. But you definitely can use walkchains as a kind of base layer for basically kind of managing these identities and figuring out what all the different cryptographic keys are and creating infrastructure to do things like. like zero dollar jadestations, for example. So I think there's definitely room for blockchains to help in a lot of those areas, too. It'll take time. So when hopefully the Ethereum blockchain, but some blockchain solves the problem of identity, right?

And we start to have like a social recovery system or simply contracts that represent people. It really, that just seems like the basal layer, right? Like the very first building block for what hopefully becomes a larger social, graph, right? So, you know, the way the way society works, the way we work as members of a community is that we have, like, we are nodes, and then we have our connections to our family members, our friends, our business partners, like people that we trust. And then that as a web spans out and ultimately reaches the whole world, right? Except it's not really defined. It's very loosely defined. It's not really instantiated anywhere. And so what I'm, what I'm, I'm, I'm, I'm, I'm, I'm,

think you are trying to illustrate is that perhaps one day this the actual relationships of people is somewhat like codified or instantiated in the Ethereum blockchain and me and me and Ryan here we talk a lot about like the bankless nation like an online digital nation digital civilization that is independent from any nation state and it seems like solving the identity on on a blockchain system will allow us to have these social representations inside of this digital nation, this one single global platform. Is that kind of where we are going with this whole identity thing on Ethereum? That's definitely one of the worlds I'm looking forward to trying to see if we can create.

And then how much progress do we need to make to get there? How far off is this problem? I mean, quite a bit. I think it is something that has to be kind of approached incrementally, and the challenge is that it has to be approached to kind of incrementally in this way where every individual step that we take is in itself useful so that people are willing to take the step.

Like, people aren't going to be willing to, you know, just sign up for IDs because they're excited about getting ideas and people aren't going to be willing to, you know, provide information about some social graph because they're excited about webs of trust. Like, you'll get a few people, but you're not going to get enough of a network effect. Whereas if you're tying the whole thing into even just something like Ginkgoin grants being one example or into some other system where you can get concrete benefits for participating, then that could be actually used to bootstrap the ecosystem.

And once the ecosystem has been bootstrapped, you can try to take it further and try doing other things with it. So Vitalik, we talked about the past and that sort of bled into an interesting conversation about identity. I want to talk about the present of Ethereum right now. So five years old, it's 2020. One of the big use cases, of course, is this DFI thing that's always been present since kind of the beginning of the white paper. There were DFI-type use cases that we didn't call it DFI back then. Now we have a meme.

What's your take on DFI? Do you like it? Do you hate it? Some of both. And I think there's definitely a lot of DFI applications that are. just really valuable and essential. Like I would consider stable coins and especially if crypto economic stable coins, so things like die and now there's Rye and some other ones coming up as being like defy and being really valuable. I would say decentralized exchanges,

uniswap has also been extremely valuable. And I hope that we can see synthetic assets representing things other than dollars, you know, major stock indices, like couple of other fiat currencies would be really nice to have prediction markets are technically defy, and it would be really nice to see prediction markets get more widely used. And there's definitely also a side to defy that feels like it sometimes kind of gets into more speculation than value and more kind of short term than long term. So like, for example, the recent kind of yield farming craze, right, where, as I understand, the yields reached over 100% annualized for some amount of time. What happens there is basically that compound created a promotion where they would basically just gift

to compound tokens to people who would kind of put their liquidity into the platform. And the result of this is basically that people kind of ran and through their total, all of their assets into the platform and started kind of collecting these fairly high interest rates. But the reality is that those interest rates are not reflective of anything that's remotely sustainable, right? It's just a temporary promotion that was created by printing a bunch of compound tokens and they can't just keep printing compound tokens forever. So if like in the long term, I definitely don't think that defy defy the double digit interest rates of any kind. right in the long run i expect the defy interest rates to converge to being something a much closer

to just the traditional financial system so i yeah i mean i do think there's kind of an element of trying to kind of rush for these things that seem like they're very lucrative but actually they're just short-term opportunities and they're not actually going to scale into something that's really meaningful for tens of millions of people but you know I guess people wants to do weird things with money and so that side of the space is just going to keep existing yeah yeah so the common thread it sounds like the things about defy that you like are they're more crypto economic and they're more long-term oriented and building and less sort of speculative less mania oriented let's call it now there is a argument about the liquidity mining side of things and the yield farming side of things, that though there is a speculation aspect to it, of course, and it could easily and maybe already has already turned into some kind of a mania, it's different than the ICO mania.

Because in the ICO mania, what we had were tokens that were really sort of, you know, they called them futility tokens, right? They didn't have a value accrual mechanism. But it could be argued that some of these tokens like Comp, like Balancer, are going to add value accrual mechanisms in the same way that Maker has a value accrual mechanism. Do you think that's healthy that the assets, at least, are healthier from a value accrual perspective? I love how you referred to utility tokens as a futility tokens, by the way. That's great. and the economic model is definitely like it's unsustainable but it has less downside risk from an economic point of view I think the main downside risk I'm concerned about with defy is smart contract risk so either smart contract bug risk or oracle risk of some type

basically, you know, if you have like $600 million or whatever it is inside of these systems before they've been really well-added and they're ready to accept those values. And either it turns out there is a bug in the contract or it turns out that, you know, the Oracle gets attacked somehow, then that could be a really big problem for people. And I do think that people should kind of keep some of these risks in mind. Right. Like I remember people saying things like, oh, you know, if you have your dollars in a bank account, you get 2%. And if you have your dollars in die, you get 4%. What, it's double the interest rates and it's amazing. But the reality is that that extra, that 4% is only a good deal if you assume that the risk of maker day out was a system breaking is less than 2% a year. And if you're a risk neutral. I mean, if you're risk averse, then you would want to be even more conservative. You'd want the risk to maybe be less than. than 1% a year or less than half a percent a year or something like that. So the question is, you know, do you actually think that the risk of MakerDAO breaking over the course of the next 12 months is less than 2%. I mean, MakerDell's done an excellent job of surviving these last two and a half years

with basically no losses to dieholders, right? It survived a 93% loss in the price of Eith. It even survived a, I think it was 55 or 60% loss in the price of Eth over the course of a single day, which is just really amazing. So it's definitely shown some sturdiness, but has it shown an expected lifetime of more than 50 years? It's less clear. So I definitely think that that's something that people kind of should be careful about and people should just remember. that, you know, these kind of background risks of systems just breaking for weird unknown reasons is something that does continue to exist.

You know, even though, yes, Maker and these other projects have done a lot of work informally verifying their stuff and they've done vastly more due diligence than the Dow did in 2016, but, you know, even still, like, claiming that a system is expected to break less than once and half a century after that system has only been an operation for two and a half years is something that requires a lot of confidence and it's not clear that we can justify that high level of confidence yet. So I guess I continue advising caution in that regard. So, Vitalik, you talked about how the very strong APR of compound with this liquidity mining thing like worried you, right? And perhaps it illustrated some sort of mania going on, especially as the

comp token rose to where it or where it is now. which is almost a $2 billion market cap, you know, right out of the gate. However, I would like to pitch an equal and opposite view where this excitement over the comp token is a great tool for decentralizing the compound system, right? So the comp token is now the thing that represents ownership over the compound protocol. And this excitement about comp and the liquidity mining around comp is all about people like this. nebulous set of stakeholders who are adding liquidity to compound, they just really, really want to get the comp token, which is why the comp token price is so high because of all the excitement that the comp token has generated because people are really excited to get their hands on the governance

token, which is the way that the compound protocol moves from a protocol controlled and operated by compound labs to controlled and operated by this nebulous set of people that own the comp token. And so is that a fair take to have about like the mania, the goodness of the mania surrounding the liquidity mining and then the comp token? Yeah. Liquidity mining is definitely just economically a really interesting concept. So like in general, one question to ask is like if someone is being paid in one token and they wants to have another token, right? Then a spherical Cal economic model generally says, well, they'll just sell that token and they'll buy the other token, right? spherical Cal Economic model would say it doesn't matter in which currency you pay someone for a service

because they will just immediately go ahead and trade that into having the portfolio allocation that they wanted to have anyway, which is completely independent of your choice of what thing you want, you wants to give them. And even if you lock the tokens, then, you know, they could still just like cancel that out by buying a shorting it and some other. a finance, like, defy financial derivatives platform. And in reality, of course, that often doesn't end up happening, right? And defaults often end up being sticky. And it turns out that if you just like throw a token into people's hands, then people

often do actually end up keeping it. And if you just throw a token into people's hands as a byproduct, then you do end up putting it into more people's hands than you would if people had to actually proactively go on uniswap and buy that token themselves. So just as a kind of default-based system, it's kind of really interesting. And I do think that there's a limit to kind of how much liquidity mining is sustainable. Like I think that if your liquidity mining system is one that basically makes the kind of de facto fee of using the system negative.

So it gives you more than you're paying in fees. Then that easily turns into something that gets exploitable. Like basically, the equilibrium there is just you would have people that have lots and lots of money, just put all of their money into your system. And then they collect the rewards. And they just immediately sell out all of their tokens because they don't actually care about the application. They're just a kind of amoral, you know, money making yield for. farmer and so you don't actually kind of get the community kind of and the default benefits

beyond a certain point. But I think that, you know, if you create a more modest version and you say, you know, yes, this defy protocol has a fee of 0.3%, but you get the, you know, 0.2% or even the entire 0.3% back, but just denominated in this protocol token. And yes, if you want, you can go sell it on uniswap. But, you know, by default, you're just going to keep it and you're just going to slowly turn into a kind of citizen of the protocol, then that's actually a really interesting community dynamic. And also, I definitely kind of feel like you have to have some sympathy for protocol creators because protocol creators want, I think, to have decentralized token distributions and making a decentralized token distribution is hard. Like, before you had sales and now it's

illegally risky to have a sale unless you have the sale in a way that's fairly centralized. Before you had airdrops, but air drops, they're giving a lot of kind of money away for free, and it's not necessarily clear how effective they are. I do think they can be very effective in some cases, but they do have to be designed fairly well. And then there's obviously distributing coins that kind of per person, but that just gets back to the whole discussion about identity systems. You know, I don't know. I think, like, there's a lot of kind of challenges that people that are trying to make these new projects face. And so I do think that we have to kind of have a bit of mercy toward them and a bit of forgiveness toward models that aren't perfectly optimal. But, and so I guess liquidity mining is definitely interesting, but it's also not the end. And I kind of look forward to seeing what other things people come up with. Yeah, well said. And intent certainly does matter. I think there. There have been times when scammers with ill intent just use these sorts of things to scam people.

And, you know, it remains to be seen, I guess, what the intent is of these DFI protocols. But I think it's promising. But one thing you mentioned earlier, Vitalik, was advising caution, both about smart contract risk and interest rates and kind of this speculative mania that's growing about these tokens. You advise caution in 2017, too. I'm not sure people listen to you. Or maybe some people did. But I guess my question is, like, humans are bad with risk, and they're going to speculate no matter what.

There's always going to be another speculation. David and I tend to think that we are on the edge, perhaps, the very beginnings of another speculative bubble that might be coming down the pipe, you know, maybe soon, maybe the next, you know, months or a year or so. is there an upside to all of this speculation? There's definitely an upside to speculation. Like I think the usual line is that bubbles tend to be bad for the participants, or tech bubbles tend to be bad for the participants, but they're good for a society

because, well, they basically fund public goods, right? So, you know, with public goods, the line is that kind of rational, self-interested agents end up underinvesting in public goods because they only get part of a small part of the benefit from their contributions. But if you take crazy agents who overrate the effect of things that they're participating in, that that kind of ironically ends up canceling out for the other economic bias, and so you get something that's kind of strangely enough closer to being socially optimal. So that's an interesting argument. I do think that's one of those kind of dangerous arguments because if that's something that you tell yourself to make yourself feel better,

then you could end up creating or contributing to kind of bubbles that end up really hurting a lot of people and just making you some insiders rich in the process and you kind of still think that you're being virtuous all the way through because like, hey, it's somehow funding a bit of protocol development in the back end. So like you definitely have to be careful about the moral justifications that you tell yourself in that regard. But there's definitely a kind of real positive benefit, right? Like you can't deny the fact that just the crypto mania up until now has funded important things. Like if the ETH2 client development, zero knowledge proof research,

Ethereum 1 and 1.X client development and all of these other things that the Ethereum Foundation and a lot of other groups in the crypto ecosystem have ended up spending their money on. Also a lot of non-crypto charities that ended up benefiting from donations from just people who got kind of crypto rich in 2017. I made a few myself, but then there was the pineapple funds that threw around

to kind of even more money, and that's probably something that's led to a lot of good. So you definitely can't deny. those positive consequences have happened, but yeah, at the same time, like, you have to be careful and kind of avoid that turning into this kind of self-justification story that you keep telling yourself and you keep on telling yourself more and more until at the end that you don't even realize it, but you're no better than Tron. So, you know, we definitely want to be better than Tron here in the Bankless Nation, Vitalik, and, you know, I hope we're doing a good job of that.

That's good to hear. Yeah. One more case for speculation, though, is also this. Doesn't it bring users into the space, new people into the space? We're going to have a global financial or settlement or, you know, computer system for the world. We need more people. And just about everyone I know that this may be not a developer came to the space because of some price run up, right? like just it, you know, it captured headlines.

That's how they found out about it. That's how the information was disseminated. That's where they initially came to the space. Now, the people who really understood what it was trying to achieve tended to stay after the bubble popped. But it tends to bring people in in these waves. Is that an upside too? That's definitely an upside.

And I think the money aspect of crypto is definitely a big, and a part of the reason why it has been so successful are getting users where a lot of the previous efforts that decentralization have failed. And also, I think that just the fact that it's risen in price is something that just gives crypto a lot of status. Like, I think a lot of people underestimate, especially across the entire range of cultures that exist in a global context, just the extent to which that financial success brings a kind of legitimacy that would otherwise not exist in a space. And so, you know, we've been seeing just crypto as a thing become really successful in a lot of regions around the world. You know, there's kind of the U.S. and Europe and there's India, there's like China and Korea and other places in Asia.

there's, you know, South America and Africa. And in a lot of those places, kind of the memes that attract a lot of many U.S. people to crypto are definitely not as prevalent by default. And so the kind of the legitimization function that comes from the fact that crypto is, you know, financially successful has definitely been important in kind of that more global. context as well. So, you know, there's definitely benefits, though at the same time, there's a lot of risks, right? And the risks basically come because, you know, not every member that joins your community is a net positive contributor, right? And a lot of the time, people that are there for just the money, unless, you can manage their presence well, can easily end up being net negative contributors. And I mean, I feel like in a lot of crypto communities,

communities we end up seeing that, right, in the crypto communities that kind of really strongly emphasize the money aspects. Like the community just ends up being about speculation and people come in about, you know, hey, the coin's going to go up and the coin's going to go up even more. And this is the reason I'm excited about participating. And those kinds of communities tend to be short term. They tend to just not create much value for the world. And it can easily kind of slide down a dark path toward being an even worse.

kind of MLU sort of thing. So I think that it is also important for us as a community to just kind of keep kind of talking and keep signaling about how we're not just about that. And, you know, like a lot of people do kind of do sometimes I kind of think of virtue signaling as though it's something kind of dishonest and it's a bad thing. but there's a lot of times where virtue signaling is good, right? There's a lot of time where you really want to just kind of publicly state, you know, these are the virtues that our community is about,

and these are the, you know, the kinds of traits that we want, that we want kind of this cluster of social space to be a magnet for, and these are the things that we want our kind of social cluster to end up repelling. Right. And if you end up dealing with things that are double-edged swords, and there's often cases where, you know, you can try to kind of build the community in such a way that it kind of attracts the positive end of the sword, and it repels the negative end of the sword.

And of course, they're ultimately two ends of the same sword, and so they're not going to be further apart from each other than the length of the sword. Okay, crap, now I'm mixing sword metaphors and magnet metaphors. You know what I'm talking about. But like there's a lot that you can do, right? So I think there's definitely these kind of complicated factors that interplay with each other and this kind of complicated task of just this collective effort of and of steering the culture and continuing to make sure that it goes in good directions and that it kind of continues to stay true to its original intentions. I feel like in a lot of those cases we have been doing fairly well, and I guess we just have to keep on making that effort.

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And also use the bankless code to get $50 off. So make sure you use that code bankless when you sign up on rocketdollar.com to get $50 off. All right, let's dive back into the interview. So Vitelek, in 2017, maybe it was very early 2018, you wrote a pretty famous tweet about how the valuations of these cryptocurrencies, cryptocurrencies, crypto networks, crypto applications were just far beyond the value that they were actually providing to the world. and you pose the question of that, you know, the cryptocurrency blockchain, Ethereum, Bitcoin world hadn't actually provided all that. It hasn't really achieved all that much. And the valuations that are currently going on in the crypto world were not reflective of the value that they deserve. Now that we're three plus years later, three and a half years later from that mania, have we gotten to the point where you would have hoped that we might actually deserve some sort of, you know, I'm not.

I'm not going to ask you to make some sort of prescriptive statement as to what the values of these networks should be. But the value that you see Ethereum providing to the world, is that kind of what you were hoping we would have been able to achieve back in 2017? It's two and a half years, not three and a half years yet, by the way. But I think so. I think like the price of Bitcoin is down by a factor of two and the price of Eiff is. down by about a factor of five, but I think, you know, the resilience of the Ethereum network and the amount of progress that the Ethereum ecosystem has made is easily up by a factor of five since two and a half years ago. And as I mentioned, you know, at the beginning of our conversation, you can see this by looking at the technology, you can see this by looking at the

research, we can see this by looking at what's actually been deployed, you can see this by looking at just what kinds of things are being built on top of Ethereum as we speak. And the amount of progress is huge. And also, I feel like just the presence of Ethereum and crypto in general as being just kind of a thing that's cemented itself as a durable part of the kind of the collective cultural conscience, I guess, kind of even just of the broader world, is something that's come much further lately. And, like, I regularly talk to a kind of fairly mainstream economists, kind of increasingly mainstream political thinkers, kind of tech business people,

and all of these groups. And, you know, they see crypto as being a kind of significant and durable piece of the puzzle. So I think from a lot of angles, it's just... made a lot of progress, and it's much less of this kind of, probably in the sky, speculative thing that it was even two and a half years ago. Okay, Vitalik, so that was present. We talked about past and present. We want to flip forward to future. So if you're in future, we began the conversation you talked about some optimism you had. A lot of the worries that you previously had were not present anymore. We were making progress in many areas. But you probably still have some worries.

about where this whole thing could go wrong. What worries you the most? What big problems do you still see in front of us, like preventing us from being the system that we all want it to be? I would say the bigger problems at this point are less technological and more cultural. So one of the things that's so worried me

around the past one and a half years, right? So if we look at this kind of rise of ETH maximalism that we've seen, right? Like on the one hand, I totally understand, you know, why that trend kind of became, became a thing and started to exist. I mean, before that, there was definitely this kind of culture of just not being able to talk about things

like the value of ETH as an asset or even just being optimistic about Ethereum specifically as a thing. And there are a lot of projects that were kind of walking all over us in some sense and just kind of, pretending to be the Ethereum community's friends and then kind of talking at our conferences and then going behind the Ethereum community's backs and talking to VCs about how terrible Ethereum is and how they're going to be better. And there's this kind of reaction to that that happened. But at the same time, there's definitely a lot of downsides and there's a lot

of risks. So like in a lot of ways, right? Many aspects of Ether's culture and kind of the influences that I've tried to make to Ethereum culture are a reaction to what I perceive as being failures in Bitcoin land. So I feel like we've always been trying to be multi-chain friendly just because of how multi-chain hostile, kind of the Bitcoin maximalist mentality has been ever since 2014. We have the multi-client roadmap because as a reaction to the negative consequences of the dominance of Bitcoin core, we have you know miners voting on the gas limit as a reaction to the flaws of having a totally fixed

block size and you know proof of stake as a reaction to the flaws of group of work and all of these different things and and Ethereum we're kind of that culture

and that aspect of it is definitely kind of becoming more like some of those things and there's benefits some of those things. Like there's benefits that come from even just being honest about the idea that, you know, if the asset is a great asset to have and that's one that can, whose value can sustain itself going into the future.

But at the same time, you know, there's risks that come out of just being unfriendly to independent blockchain ecosystems and just saying that, you know, if it's not on Ethereum, it's worthless. There's risks that come out of just having a culture that has even the slightest risk of being perceived as the outside as not being about improving the world, but being about making itself richer. You know, there was that comic that is kind of fairly famous and kind of propagated around some parts of Bitcoin land where you know and if you like the guy's holding a balloon and the other guy saying you know oh this is just a bubble and then the balloon turns into a big hot air balloon and the other person says it oh it's just a bubble and then the guy ends up standing inside of this kind of protective dome and on the outside you know how you have total civilization devastation and the guy in the outside is still saying oh you know it's just a bubble and like there's a seductive appeal to that mentality and and like there's a seductive appeal to that mentality and But of course, you know, that mentality, there's also a very deep kind of darkness to that mentality because it's basically saying we're not about improving the world. We're about being part of the process of the world collapsing.

And only if you basically buy your coin, will you be able to pretty much have salvation and be kind of on the right side of the new apart hide instead of being on the wrong side. and I would rather be part of a community that's about making sure the world doesn't blow up in the first place. And so, like, I definitely worry about kind of losing those aspects of, kind of ourselves and who we are as a byproduct of kind of some of those strengths. But, I mean, I feel like the Ethereum community does have, kind of, a lot of people that are willing to provide a lot of pushback against some of the more. negative aspects of those mentality is so I think you know there's

definitely things to be optimistic about like I feel like there's definitely like just a lot of people that do understand why it's important to not overdo some of those things and so I feel like there's a very

very strong chance that we'll be able to kind of successfully avoid most of those traps so that's one cultural thing Another cultural thing that worries me is, so from a kind of just global, you know, megapolitical to use that word from a sovereign individual, a kind of narrative around, you know, what kind of cryptocurrencies are and kind of the way that that narrative interacts with kind of what the blockchain as it is and what people use it for, right?

So this is actually a place where I think Bitcoin does it well, right? So Bitcoin, kind of the ideology is basically that, oh, you know, the central banks are just totally being incredibly irresponsible with all this money printing and the U.S. is going to collapse and the EU is going to collapse and a bunch of places are going to collapse and things will be terrible. And the thing that you're supposed to do is huddle. And if you huddle, you're being part of kind of the money of the future and you will benefit. And so kind of this broader ideology and this kind of set of facts that those people believe about the world and the people believe about what the world is going to be actually meshes together with the messaging about what you're actually concretely supposed to do with the blockchain and why that's good for you, right? Which is basically hodling because if you hoddle, you're going to hoddle the coin that's going up instead of hodeling the coin that's going to zero. And in Ethereum's case, there's less of this kind of nice meshing. right like there's definitely a lot more diversity of political views like definitely a lot less of this common belief that you know the world is going to go to hell in that same financial way like there's definitely some people who believe that and then there's other people that don't believe that um there's a lot of a kind of diversity of political perspectives uh there's a lot of diversity of economic perspectives about perspectives around like what

what decentralized social media should look like, for example. And the things that people do with the Ethereum blockchain today, in a lot of the time, feel kind of a little bit disjoint from that. Right. So even taking yield farming, for example, right? Like there's no real way in which, like, your ability to get, you know, 135% interest from yield farming today, a kind of meshes together nicely with a belief that,

people in the Ethereum community have about, you know, what the future of, like, economics and geopolitics and finance is going to look like. Um, like, it feels like those two spheres are kind of less kind of merged together with each other. And I think there are cases where this is not true. So like, I think quadratic funding is one of those examples, right? Like, Ethereum people are in many cases passionate about creating new and better social systems that solve the problems of the 21st century and quadratic funding is one of the things that potentially stands to be an actually credible solution to and of the question of how to allocate money for public goods funding.

And quadratic funding is something that people actually participate in, in this case specifically as a way of helping to make the Ethereum community better today because people care about the Ethereum community today. And so that's one example where a kind of your belief about the world and the thing that you do today as a member of the Ethereum ecosystem actually do kind of work together really nicely. But in the case of

decentralized finance, for example, I mean, stable coins may be a good example. Like, maybe I mean, even just international cryptocurrency payments, potentially a good example. And like there are some kind of good examples

of this, but there's also kind of some cases where there is this kind of disjointness. And like a lot of this disjointedness is kind of hard for me to kind of under the kind of really fully kind of entirely explain what exactly makes me uncomfortable about it it's more of this kind of instinctive thing but it is something that I think we as a community could I guess do better at so yeah I guess that kind of, so one, just concerns about Ethereum maximalism

and just kind of turning into something that makes Ethereum a less inclusive and welcoming community is one risk and then the other risk of being this disconnect between macro narratives and kind of

what people are supposed to do with the Ethereum blockchain today. Those are kind of two of the cultural issues that concern me. And then there's bunch of other other ones, but they're much smaller. And on the technological side, I would say the thing that concerns me the most is basically that

we are going to have a big bubble of adoption and interest and that this bubble will come before Ethereum scaling technology is ready for it. So I guess I hope that the people developing Ethereum scaling technology will continue adding oil and and keep continuing to just build it out and shipping it and rolling it out into the hands of people who need it.

So I'm fairly optimistic, but we'll see. On that last one, Vitalik, we're close, though, right, with roll-ups? I mean, we're close to being able to offload some of the main net traffic, aren't we? Yeah, so I think ZK roll-ups, there's loopering at ZK sync that exist already. Optimistic roll-ups seem like they're about half a year away. So we're definitely close. I think the main concern at this point is less the tech side and more the adoption side. Like, how do we actually get the people that are using Ethereum today using roll-ups instead of using the main chain?

Right. How do we get the people that are sending all of those ERC20s around, sending them inside of loopering or sending them inside of ZKSink instead of continuing to just send them on the Ethereum network and paying high transaction fees for them? And that's a question that'll be resolved by, I think, talking to wallets, kind of talking to applications and getting a whole bunch of these different ecosystem players together and getting a kind of common roadmap, which is definitely a coordination challenge. But it is one that we'll have to figure out. Vitalik, you talked a lot about how the Ethereum community is a little bit more nebulous than the Bitcoin community and how the Bitcoin community has this right. rallying cry about exactly how you participate, which is you buy BTC and you huddle and then you create the superior money system. Whereas Ethereum doesn't really have something such a strong totem to rally around. And I'm always reminded by a metaphor that Amin Soleimani put out forever

ago, which was the 300 Spartans versus the Athenians, where the Athenians are kind of this hodgepodge group of people. One's a carpenter, one's a blacksmith, one's a farmer. And then when you put them all together, you have this kind of hodgepodge army, which compared to the 300, the 300 is this very strong, like, phalanx of just people that is a hard nut to crack. However, and we see, and me and Ryan always like to talk about how, like, the code or values of a blockchain actually impacts the community that runs around it, right? And so Bitcoin is not expressive. And as a result of that, it's pushed complexity out to the fringes, right? And I was listening to a podcast with Press Switch and Hazu from Uncommon Core last night, where they talked about

the absolute lack of complexity at the base layer has pushed so much complexity into Lightning Network that it's actually been relatively restricted in itself because of how much complexity is there, whereas Ethereum has this expressiveness at the base layer, which seems to be reflected in an expressive community of a number of different people. And so while Ethereum is more expressive, I'm optimistic that that code, that values baked into the Ethereum system, the Ethereum blockchain, does actually allow for a more scalable social community, a social community around the Ethereum blockchain, simply because the expressiveness is baked into the L1. Am I onto something here, or do you see a problem with this?

That's definitely true. And I think like, I mean, kind of the moral of the story in 300, of course, was that the hyper-dedicated and focused, kind of militaristic Spartans end up being more valuable in saving Greece than kind of the motley Athenian crew. And, you know, in real life, the Spartans end up eventually winning the Peloponnesian War and all of those things. So I think, but like the real life is not exactly like that. Like I think the challenge in real life is basically that, you know, in real life there's more than two teams, right? Like our model of war tends to be that there's two teams. And so your objective in war is to kind of create maximum cohesion and strength within your team so that it can beat the other team. but in real life there's much more than two teams right and when you have more than two teams then

the winning strategy is basically to gang up with the majority of the other teams and kind of win against the rest of the teams that are not part of your alliance right and and so if you have more than two teams then a skill that becomes as important as a raw military power is your ability to convince other people and and appear sympathetic and appear as the sort of team that other people would want to be allies with. And I feel like that's one of the Ethereum community's big strengths, right? You know, the facts that we have all of these large corporations building on Ethereum that we have kind of a lot of friends and allies in academic communities, is that we have a lot of just different people all around the world that are interested in building Ethereum-related things.

So I think that's an advantage in a lot of ways. And I definitely think that the Ethereum community is a kind of model of what crypto is all about, is less one of kind of we're going to war and more about kind of this is a complex world with, you know, lots of bad forces and lots of good forces. And it's a pretty kind of complicated challenge, but let's kind of make friends and see if we can figure out a way to succeed in a way that maximally tries to make everyone happy. And if you're optimizing for that kind of world, then, you know, you do want your, your blacksmiths and your poets and all of these other characters. So yeah, and yay Athens, I guess. So, so one common theme on on the bankless

pod and what me and Ryan are always trying to define is what is Ethereum, like or Bitcoin 2. Like it's not just a blockchain, right? It's not just a database. It's not just a protocol for updating that database. It's also a community. So like how do we define these things on like the grand scale. When you take all of the interconnected components and you look at them holistically, what is it? Is it a religion? Is it a nation, a technology? Like when you compose everything together, what do we actually have? No, this is an interesting question because the answer ends up being different depending on kind of how you think about it. You know, is a, do we focus on either the asset? Do we focus on the Ethereum blockchain, do we focus on just blockchains using the Ethereum technology?

You know, is Ethereum classic a province of the Ethereum nation? Or is it just something completely split off and different? Is Enterprise Ethereum part of Ethereum? Are some of these other kind of newer blockchains that are basically forks of Ethereum, but then go off and do a bunch of their own things, kind of part of this great, great Ethereum bubble, or at what point do they kind of go sufficiently far that they're outside of it?

It depends. I mean, I think it's, you know, the real world, I think, is one where there's a lot of these kind of complicated van diagrams where, depending on what you care about, you end up kind of including and excluding different things. Like, I don't know if you've seen this, but there's this kind of fairly famous kind of diagram that attempts to describe what Britain is. And, you know, you have a circle around England, you have a circle around Britain, you have a circle around the British Isles,

and then you have a circle around a couple of other terms where to someone who's kind of pretty far away from kind of all of that, you know, hey, England, Britain, aren't those kind of synonyms of each other? And, you know, no, it's actually this kind of really complicated thing. And there's a bunch of different ideas about what gets included and what gets excluded. and are you focusing on political things or focusing on kind of geographic other things? So I don't think there is one clear answer. I think the answer does ultimately depend on what you would care about. So, Vitalik, you mentioned ETH the asset and that being sort of a stakeholder group,

and it certainly is our take has been that ETH the asset has been underappreciated in the past. And by past, it probably means recent past, you know, the last two years, let's call it, underappreciated as a source of collateral for all of the DFI that's built on top of it, underappreciated as security, essentially, for the entire network. And we put out this idea, like the triple point asset thesis idea, which is that ETH is kind of three asset superclasses at once. It acts as sort of a commodity when you buy ETH transactions with it and use it to pay for gas, that sort of thing. In staking, it will act as a capital asset and that it returns to use some eth, almost like a bond or like a T bill in exchange for depositing

it and bonding it. And it also acts as a store of value in some ways. So a collateral for the entirety of the D5 space. Do you buy into that? And what's your take on what ETH actually is? No, that definitely makes sense. And thanks for explaining. And I saw the term like triple point asset. I think it was yesterday on Twitter. At first, I thought it had something to do with that particular kind of temperature and pressure where eth is somehow a solid liquid and a gas at the same time. That's exactly right. Well, okay. That's exactly right. Okay. Oh, I see. That is the exact metaphor. Oh, okay. Now I actually get it. Yeah, it is gas and store value ends, medium of exchange. Okay, no, that's. And all of those things at once, right? Because Heath is very, you know,

composable. It could be all of those things. Okay, that's really cool then. I definitely agree with that. And I think there's definitely multiple ways of thinking about ether. And the nice thing is that I think these functions, they don't interfere with each other, and

they even kind of complement each other, right? So, like, especially, you know, once EAP 1559 comes out and you get some ETH being burns, then the more ETH that gets used to pay for transaction fees, the better restore value Ether becomes. and if either it gets used as a store of value, then that also might push up its price and ends up leading to a more secure network.

And then if people, more people send transactions, some of that also ends up going to the stakers. So there's definitely a lot of kind of virtual cycles and kind of positive feedback loops between those three use cases. So it's definitely a good way of thinking about it. You know, our other take is that the value of eth is super important for the security of the network. But also, if you want, you were talking earlier about some of your favorite defy use cases. You mentioned stable coins that your favorites were among the like more crypto economic stable coins. And for those types of stable coins, having a protocol relatively like risk-free, source of value, source of collateral, tends to be pretty important.

Like, what's your take? I mean, how important is the value of ETH to the success of Ethereum? No, the stable coin case is definitely a good example because ultimately, you know, the total amount of value that can be stored in ETH-backed crypto economic stable coins is bounded above by the value of all the ETH, right? And so if there's no value in ETH, that it becomes much harder to have a lot of value in crypto economic stable coins. So that's definitely...

We have another metaphor for that, by the way, Vitalik, which is economic bandwidth. You know, ETH acts as sort of a value bandwidth at the base layer for these other assets that can be built on top of it. Right. Okay, so what's the metaphor for Eith being a plasma and what's the metaphor for Eith being a Boz Einstein condensate?

I don't know, maybe you can help us with that one. Yeah. We'll say that for the future. You know, that's that's 20-25 type of, you know, meaming, I think. We're still in 2020. Okay. Yeah, that's fair. No, 2020, you know, the hindsight year, it's a good year.

Let's finish it. Yeah. Vitalik, one other question on ETH, the asset, and that's ETH's monetary policy. So that's been a criticism historically of Ethereum that it doesn't have a fully defined monetary policy. We've talked about minimum necessary issuance as being sort of the social contract of Ethereum. Yet, the truth is, it's not something, minimum necessary issuance isn't something that can be really hard-coded into Ethereum. So it's decided by the social contract. Should we readjust gas downward, for instance? It's kind of, or should we decrease issuance that's

kind of decided by the social contract? Is that sustainable? or do you think we need to kind of codify each monetary policy as part of ETH II? And what would that even look like? Well, the trouble is that you can't like permanently codify monetary policy, right? Because ultimately it is just backed by the social contract. And if the social contract changes in Ethereum or in Bitcoin,

then the total supply ends up being different from what people expected it to be. Now, of course, you can have social contracts that value immutability more than others. And you can even have a social contract that values and of greater and greater ossification over time, which seems like roughly the social contract that Ethereum has already. So I don't think there is much kind of too special that we need to worry about in that regard.

It definitely is something that I think we should avoid ossifying kind of at the beginning because proof of stake and Ethereum's variety especially is still an untested experiment and we have no idea how sustainable it will be. but over time, moving toward freezing values in place and moving toward adding stronger year and T's, I think is definitely something that's reasonable to think about. But you do think that the issuance rate of ether should be something that is calcified in Ethereum in the future at some point. Is that right? I mean, I don't think I'm a proponent of calcifying the issuance rate in the sense of guaranteeing

a hard number, like, you know, a hard cap or even a hard, like zero. 0.1% a year or something like that. I mean, in the proof of stake design that we have, right? I mean, there is already a planned kind of upper bound of 2% a year. And if we want, we could obviously try to reduce that upper bound. But even that upper bound is still kind of ultimately changeable by changes to the protocol. So, and that's something that we're just going to be kind of more and more comfortable with over time. The reason why I'm not comfortable with a hard cap is basically because I do believe that we should take this trade off of if we have to make a choice between certainty of issuance and certainty of the level of Ethereum platform security, then we should choose certainty of the level of Ethereum platform security.

Do you also agree, Vitalik, that since the platform security is backed by the asset itself, there can be kind of a value if you have. have a neutral monetary policy that groups of people, you know, value more, that therefore increases the price of the asset increases your security. Is there kind of a balance there? I mean, Bitcoin has achieved some pretty tremendous security based on the mean value of Bitcoin, let's call it, of this fixed cap. You know, can we benefit from that in Ethereum? That's true, though I feel like. there is other ways to benefit from that mean value. Like, even for example, if you look at just the amount of transaction fees down,

and if those transaction fees end up, like, even 80% getting burns, then that's already higher than expected proof of stake issuance. So I think if we're just a little bit patient and we start seeing, you know, four or five years from now there being like entire long periods of time where ether issuance goes negative, then that's something that occurred to turn out to be an insanely powerful meme by itself. Like even if it's not technically guaranteed and even if, you know, usage stops, it goes back to being positive for some time.

And just even that's something that could end up attracting a lot of people. So I don't think we shouldn't even be kind of trying to freeze things now. I think we should be willing to be a bit more patient than just seeing what proof of stake ends up looking like economically speaking. And as we enter proof of stake, as it's defined now in the protocol, how would you sort of describe issuance. So you mentioned sort of a 2% upper limit. Do you have some other details of how you might describe what issuance policy will be in proof of stake? Yeah, and it's basically an increasing function and how many people validate. So if a very little eth is validating,

it could be as little as like 100, 200,000 ether year. And then if literally everyone validates, it ends up going up to 2 million ether year, and then you subtract from that transaction fee burn. So that's basically what it is. And that does feel kind of very abstract and weird and like, you know, I'm just like somebody who wants to figure out whether or not to hoddle a cryptocurrency. Why are you throwing weird math formulas involving square roots at me? But I think that people will kind of overrate the cost of that. And the reason, again, the mental cost of that. And the reason why people overrate the mental cost of that is because it's a formula today.

but when ETH II is running and when people see what the formulas actually lead to and what results they create in practice, I think people will and just see, okay, yeah, fine, these are the numbers that it looks like it is in practice, and those are numbers that I'm fairly comfortable with and so will participate. Like, I think, like, average people and especially people that are not so much super analytical, I think, like, us analytical people underestimate the extends to which kind of those, like, less analytical people are willing to just, like, kind of intuitively reasoned by looking at past experience and the extent to which that actually works pretty well for most people. Yeah. Any guesses on how much time Satoshi thought about the 21 million hard cap? Like, how much time you put into that? Like, my guess is probably very little. It was kind of a guess, right? Yeah, that's my guess, too. And that issuance rate that you were talking about, that's going to be hard-coded in Ethereum the same way the 21 million is.

Of course, maintained by social contract, but also hard-coded, right? Yeah. Very good. All right, Vitalik, we're going to finish this up with a quick lightning round, sir. So just a sentence or two answer on these, if you can. If not, then we can discuss it some more. The first question I have, the lightning round, is, are gas fees? So gas fees are too high, and that leads to inequality.

Do you think that statement is fair or overblown? By the way, it's not a lightning round. It's a roll-up round. I definitely think that gas fee is being high as bad for Ethereum's goal to be in a egalitarian system. And that's a big part of the reason why I'm so focused on scalability. Ether flippinging Bitcoin. Is that going to happen? We'll see. No comment. Fair enough.

What's the low-hanging fruit that you'd like to see built on Ethereum Vitalik? I mean, I keep yelling about smart contract wallets, so can I keep saying smart contract wallets? Absolutely. Why smart contract wallets? Just because wallet security is, I think, just a boring but continually underrated problem, and we need to have just solutions to that that have good user experience. Another thing I'd probably also say is that in addition to having stable coins for the dollar, I think it will be nice to have synthetic assets that represent other kinds of assets. So like other major fiat currencies and major stock indices will be the thing that I would go for.

I get to take this one, David. What's your favorite ETH killer, Vitalik? I mean, I like some of the work that these optimistic roll-up teams like, you know, fuel and optimism and arbitram are doing. Yeah, I'm curious how you stay so unflappable in the face of all of the Twitter trolling. Do you have like a secret for that? How can we emulate you? I guess eventually you just kind of get used to it. And I don't know, it just kind of take life less seriously.

And I guess it comes naturally. So in Ethereum, we tend to rotate what our focus is from time to time. Right now, it seems to be there's this boom of L2 networks coming online. There's also the D5 movement. Perhaps there's also prediction markets on the horizon. What do you think the Ethereum world is going to focus on next? I think continued work on DFI. I think there is going to be a lot of focus around actually finalizing and rolling out the scaling solutions.

And that will end up occupying a lot of people's attention. Hopefully more privacy solutions too. I mean, prediction markets, I hope that we'll see more interest in actually using those. And I know Omen is out and the Auger version 2 is coming out soon. Next one is, is crypto on a collision course with nation states? Hmm. That's an interesting one. Crypto is definitely in a very interesting position with respect to the current,

It's a kind of geopolitical and infopolitical landscape, right? Because the geopolitical landscape seems to be one where at least centralized systems are finding it harder and harder to escape the reality of them being inside the nation states that they happen to be based inside of. And people trying to kind of create more and more of these kind of nation state level barriers. So, you know, obviously the kind of the Chinese firewall has been around for all. long time and yesterday Pompeo made a bit of a bluster about kind of wanting to ban TikTok

in Europe there's been a lot of this kind of unfriendliness toward U.S. tech companies for some time and then of course some people obviously say oh no that's just antitrust and data protection and then the cynics kind of say that

well actually kind of a lot of these kind of moves seem very targeted to like basically kicking US companies out. So there is this kind of balkanization of the centralized internet. And then the other one I'll add is, of course, India banning all of those Chinese applications. And this desire of kind of building these kind of techno-centralized civilization states, essentially. And crypto is kind of standing strong.

as one of the few remaining things that's genuine way really international and that's a kind of position that we should be very happy that we've managed to maintain and stay inside. And I do think that kind of the cryptocurrency part of crypto is a big part of why it managed to do this and why it actually managed to get some of this global appeal. Like, you know, the ideology is the ideology, but, you know, number go up. is kind of one of the closest things that we that humanity actually has to a universal values like it or not and that's something that puts it into a position where it has the ability to and of continue to exist as a abridging layer between kind of all of these different ecosystems

but at the same time you know that means that crypto can do things that are kind of other actors increasingly can't do and that also kind of puts the target on the back of its head and will crypto be able to kind of weather the storm in terms of having that target on the back of its head? I don't know. We'll see. And this is definitely one of the big challenges that we're going to have to navigate. In what ways is crypto going to be bad for the world? I mean, the speculation bubbles have definitely had negative consequences. I mean, in a lot of cases, Some of the kind of Ponzi's and especially the ones targeting third world countries have had negative consequences. And I think we've definitely, we as a community, have definitely not come close to exhausting our options for trying to deal with and mitigate some of that damage.

And there's a lot considerably more that we could be doing. and even like fully in the context of crypto being a and ethereum being a fully permissionless and decentralized system where we can't just like kick off applications we don't like like even um out's given that constraint there's still a lot a lot more that we could do um I mean ransomware also a negative consequence so in general right like there's it is definitely kind of one of the just the facts of sense of censorship resistance that you're also going to end up taking on applications that based kind of people would have wanted to want to censor for for reasons that you sometimes like and that's kind of one of the costs that you

have to end up paying I mean I do think that kind of some of the reputation that kind of crypto gets as a result of those things does end up being undeserved. Like basically the kind of effect is, right, that a lot of those kind of undesirable use cases, ultimately, like, they're going to exist anyway, and they're going to, but of course, they're going to move onto the platform that's kind of most convenient for them. And so the marginal benefit of that crypto provides to these applications

is much less than kind of the, volume of activity of activity that's of those applications that's happening inside of crypto, right? Because if crypto did not exist, then those applications would probably still exist. It would just exist on other platforms. And yes, often those platforms would be less efficient for those use cases, but kind of that delta of, and if the increase of efficiency that crypto provides is much less than just the total volume of those applications that ends up happening on crypto. So I do think that in the extent to which crypto is responsible for those things happening ends up being overstated in a lot of cases. But there are real issues and there are real things that we could be doing more to mitigate in that regard.

And there's a lot of things that Ethereum and the Ethereum community have been doing to mitigate, right? Especially if you just look at the Ethereum community versus some of the more unscrupulous crypto communities in this. base. There's definitely a night and day difference, but there's still much more that we could do. Do you believe immortality is possible? Yes, I do. Well, it depends what you mean. Is it going to be good? Oh, that absolutely. The way that I think about it is like, imagine if, you know, we were elves and we were actually immortal. and then someone came along with the bright idea of like, hey, how about we unleash a virus into the world that makes everyone die after 100 years? And we're going to do this because, you know, old people deserve to die because they have bad opinions or, you know, whatever.

Other one of these really horrible reasons is that people comes up with. Like, people will just completely reject that. And if someone tries to do that by force, they'll be, like, basically it just hanged for genocide. pretty much immediately, right? So if you flip that around, like, yes, of course, I think humans being immortal as a vast improvement over the status quo. And I actually think that we are going to see a bit of a kind of sea change in favor of those things. Like, what are the things I've noticed as a result of COVID-19 is that people are realizing that, you know, bad things don't just happen because of technology. Bad things can't

happen because of lack of technology. Like if we had a vaccine for the virus, then we would have much fewer problems. If we had better ways of just understanding what the heck is going on in terms of the virus and who it's infecting and how. And if we had better statistics, then there would be much fewer problems. But on the other hand, if we had a kind of back to the land caveman society, well, guess what? We would still have the virus and it would kill considerably more people. So there is definitely this kind of pro-technology trends that I'm seeing coming out of this.

And I think pro-using technology to get rid of biological mortality entirely is going to be one of the positive results of that trend. But of course, biological mortality can only get to about a few kind of trillion or quadrillion years before the entropy of the universe starts running out. And then there's a question of like, can we kind of create? new universes and to keep on putting ourselves into your universes to survive even beyond then. And I don't know. I mean, I hope we can. Infinity is definitely better than a quadrillion years, but we'll see. Vitalik, one last question for our roll-up round, and it's been an absolute pleasure to have you, sir. And we'll close it out with this question.

How are you going to be celebrating Ethereum's fifth birthday on July 30th? I don't know. Maybe running a 2.0 staking node. We'll see. All right. That's it. Maybe birthday cake and candles involved or just the staking node? We'll have to see. Could do a birthday cake too. I don't know. Five is a milestone. Vitalik, it's been a pleasure to have you on bankless.

Thanks for taking the time to answer our questions and speak with the bankless nation. We certainly appreciated it. And we are looking forward to new developments on the Ethereum. Thank you. This has been great. All right, everyone. Actions from that conversation. We've included in the show notes a timeline to some of the key Ethereum achievements. So take a look at that, reflect back on where we've come in the last five years.

We've also included a link to some of the previous Ethereum-focused episodes on Bankless. So make sure you catch up on some of those past Ethereum episodes as we start to celebrate Ethereum's fifth birthday. The third thing you could do is give us five stars. David, why do we need those stars? We need those five stars because we are trying to grow the bankless nation. And the way that we do that is we get the bankless gospel into as many years as possible. Climbing up the crypto podcast charts is difficult because of how many people downloaded

podcast in 2017. And we're still fighting against that tide today. So we're going to get there eventually. but it would be awesome if we had your help in getting those five stars and those good reviews so that we can climb the ranks when you type in Bitcoin, when you type in Ethereum, when you type in crypto into the Apple or Spotify podcast charts, into the Apple or Spotify podcast search that bankless shows up first. All right, let's do it.

So risks and disclaimers as well. We talked about some of those in the episode with Vitalik. But just a reminder, ETH is risky. All of crypto is risky. so is Defi. You could lose what you put in, but we are headed west. This is the frontier. It's not from everyone, but we are glad you are with us on the bankless journey.