Bankless - 35 - Designing Ethereum | Vitalik Buterin

Starting point is 00:00:01 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. David, how are you feeling after this episode? Absolutely stoked for the future of Ethereum, as I usually am. Ryan, when we started this podcast, the first 10 or so episodes, was really about getting people onboarded into the bankless world, into the world of crypto monies and protocols as financial institutions.

Starting point is 00:00:48 And then defy blew up really hard, really fast. And we had to, you know, we had to answer for that. There was a lot of excitement going on. But we never got to the topic of values as they are baked into the systems that we are using, specifically at the base layer of Ethereum itself, right? And this is what that episode was for. This episode is about learning about the design choices of the Ethereum protocol and how different values have been baked into how we have chosen to build Ethereum and how we have chosen to build

Starting point is 00:01:20 Ethereum into the future. Yeah, if you're looking to understand what Ethereum is and what its future roadmap is, this is the episode for you. I hope this becomes kind of a canonical episode for anyone who wants to learn about Ethereum. And who better to explain it than Vitalik. He has fantastic explanation. Sometimes they go into some technical detail, but hang with that and you'll get a perfect picture as to what the value system is for Ethereum and how it's going to shape up in the coming years. You know, one thing I was struck by, David, is we call it ETH2.O, this whole new initiative, like the next, I guess, phase, the phases of the Ethereum roadmap. But there's really no Ethereum 2.0. It's all one Ethereum network. It's all one Ethereum value system and social contract.

Starting point is 00:02:06 and the thing that we call ETH1 and ETH2 will eventually merge anyway. And I saw that very clearly as we talked to Vitellic, that that was going to happen. There's one Ethereum, there's one community, there's one set of value systems that we all kind of abide by. And it's just really exciting to see that level of unity. Yeah, I really like that framing. There's one collective of the Ethereum hive mind, right? And the blockchain is just one component of that. you know, the off-chain component are, you know, people like you and me, people like the listeners

Starting point is 00:02:39 of this podcast, people that discuss and communicate values around sort of as this like super layer upon what we all perceive Ethereum to be, which, you know, right now is Ethereum 1.x and then also is about to be phase zero of Ethereum, which, you know, as you alluded to, we'll start off as a test net and then slowly kind of roll into actually being real-life Ethereum. So that's a good point. there isn't one canonical version of Ethereum. There's just the values that we have and the code that we use to express it. You know, David, I'm really proud of something too. At one point, we asked the question of Vitalik, like, hey, who decides what our values are as

Starting point is 00:03:15 Ethereum? Like, we keep using this term our values, but how do we know what our values even are? And, you know, I'm really excited that the bankless nation has been part of that structuring of value systems, right? I think the bankless nation, our value systems are very clear. We want self-sovereign money. We want to remove intermediaries. We want to remove the bankers that control your life.

Starting point is 00:03:37 And we are part of the value system. We determine partially the values of a system like Ethereum. It's just one big social contract and one conversation. Bankless absolutely plays a role there. So thank you listeners for keeping these values close to your heart, communicating them, spreading the word, spreading the message that what we want and what we need is a decentralized money system for the people by the people. This is our longest podcast yet.

Starting point is 00:04:08 It goes on for almost two hours. And that's because we really take our time going through every single facet of Ethereum, proof of stake, sharding, EIP-1559, roll-ups, the transition. And then we also do a fun roll-ups round at the end where we ask Vitalik some quick questions. So use this episode as a tool to reference. It's long because it is dense. There should be something in here for everyone. So I hope you guys enjoy this episode.

Starting point is 00:04:37 All right, David, before we jump into the episode, let's talk for a minute about our fantastic sponsors. One of the tools I've started to use recently is Zapper. For those of you that were part of the 2017 bull market, it was characterized by just opening up Blockfolio and refreshing it over and over and over again. And also, anytime you ever made a trade, you would have to go into Blockfolio and manually input that trade information to make sure that your portfolio that you think that you have matches what you actually have.

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Starting point is 00:07:11 They're beautiful bankless visa cards. It makes me realize that the revolution is here. Search Monolith in the app store. Okay, let's get to the episode with Vitalik. Bankless Nation, we want to welcome back Vitalik. Buteran, who is the founder of Ethereum, a researcher at the Ethereum Foundation. Of course, he needs no introduction to the Bankless Nation. He's been here before.

Starting point is 00:07:38 I'm sure you know of his work. We brought him here to talk about the why of ETH too, though. We want to dig deep into the design decisions that were made and also the values that were embedded in Ethereum 2.0. It is coming up fast and why we care about these values. Vitalik, it's great to have you. Welcome to Bankless. Thank you very much, Ryan.

Starting point is 00:08:00 It's good to be here again. All right. Well, I'm going to start with this. Skeptics have been saying ETH II will never ship for a very long time, about as long as I've been in this space. Before that, they were probably saying ETH One wouldn't ship. I think they're wrong, but my question is a little bit different. Is Ethereum 2 going to ship as advertised?

Starting point is 00:08:21 I think so. I think ETH2. So first of all, phase zero is, intest that has been intested for a while is very close to being released. And phase zero offers everything that phase zero was always stated that it would provide. It's got the proof of stake. It's a chain. It's running. You can use it.

Starting point is 00:08:45 And then phase one provides sharding. And sharding is going to be there as advertised. And then scalability from applicability. from applications and you just combine together the sharding with roll-ups and I know I've got 100,000 TPS, which is I think almost exactly the same as among the crazier of the numbers that I've thrown around during the good old days around that 2015 and 2016. So both an end to mining and an introduction to a stake-based consensus and ultra-high scalability are both going to be within the hands of Ethereum users, I think, much sooner than a lot of people think.

Starting point is 00:09:29 So we want to zoom out and have this be sort of a canonical, like, what is ETH2 episode and why? So want to zoom out and talk about this question. What political values is Ethereum going for in ETH2? And how did that really constrain the design space for ETH2 architecture? There's two ways to look at what ETH2. is trying to accomplish. One is to look at what it's trying to add that ETH1 doesn't have and why. And number two is what is ETH2 unwilling to give up in order to achieve that? Right. So from the first point of view, so what is ETH2 trying to achieve that ETH1 does not have? The two major

Starting point is 00:10:18 parts to this are one is proof of stake and the other is sharding. And, I mean, proof of stake is a fairly, kind of philosophically complex thing that does combine together multiple objectives. One of the really important ones, I think, is just moving away from the extreme levels of waste and energy inefficiency that you can find in proof of work systems. I'm also trying to move away from some of the centralization risks that we've been seeing in either. both Ethereum and even more so in Bitcoin with its much more mature ASIC ecosystem. And also, a proof of stake tries to be kind of maximally democratic and open to participate, and not just as a user, but also as a staker. Sharding is a scalability solution,

Starting point is 00:11:17 and so the goal is to try to just increase the number of transactions that the Ethereum blockchain can handle from the status quo, which is about 15, if we're talking about actual transactions that are on average that people send, or 45, if we just assume everyone only cares about sending ETH transfers, up to some number between 1,000 and 100,000, depending on which phase you're talking about, and what kind of application it is. And increasing scalability is valuable because we believe in Ethereum, as being this

Starting point is 00:11:52 a kind of publicly accessible open global architecture that people should be able to interact with without doing so through centralized intermediaries. We believe that the base layers of the new internet should be a open thing that

Starting point is 00:12:14 is expected for regular people to be able to participate in. And if, If you don't do a scalability, then the alternative is to basically take some approach where, you know, you have some master network that only a fairly powerful institutional actors participate in, and then you start having trusted side chains, and most people would live in trusted side chains. And that's not really the kind of world that I wants to be building. just basically because I think if intermediation becomes the norm, there's a lot of just historical examples of how institutionalized intermediation can very easily be kind of seized and turn into a tool of control by people that the original creators of those systems were absolutely not expecting.

Starting point is 00:13:09 So that's why increasing TBS is valuable. And then the next question is, what properties are we not willing to sacrifice? So one of the properties that we really care about in ETH II, and I think perhaps the level of insistence on this maybe makes Ethereum stand out alone relative to some of the other chains, is this principle that we do not want to have super no dependence, right? We want Ethereum to be a system that can run and fully operate without relying on some super powerful computer.

Starting point is 00:13:49 We want the system to, if need be, be able to operate entirely just as a collection of consumer laptops. And this is something that at least I personally strive to stick to very closely. because I do believe in a lot of the bit-o-oiner ideas around big things like, you know, if you let the chain just to be controlled by a small number of institutions, then, you know, you're creating a small number of actors that could potentially take it over and start, you know, pulling it in unfavorable directions. I want to even encourage a kind of culture of active participation in kind of proof of stake by regular users, for example. And that's something that if you take one of these paths that just say, oh, let's rely on supernotes that you just can't do.

Starting point is 00:14:50 Like if you have a chain that relies on supernodes as a lot of these other blockchains are doing, so where you just rely on every node in the network to have a very powerful computer, then you're going to have a relatively small number of participants. And if a large portion of those participants come together and say, you know, from next month starting from then, we are going to just start enforcing different rules. And if you don't like it, screw you, there's kind of much less of an institutional barrier against them doing that sort of thing, because there's a much smaller number of participants that would need to collude, and there's a much smaller number of people whose nodes would just kind of break by default if that happens.

Starting point is 00:15:34 So decentralization is in a very significant part about avoiding those kinds of situations. So that's why we've been uncomfortable with super node assumptions, also uncomfortable with honest majority assumptions. This is one of those things that I think unites some Ethereum philosophy and a lot of Bitcoin philosophy, right? Like, Bitcoin philosophy is all about, you know, you validate the chain yourself because otherwise

Starting point is 00:15:59 you're just trusting the minor majority and the minor majority is not necessarily that friendly. And ETH II is also increasingly designed to offer strong, you know, robustness and security guarantees even in the face of a dishonest majority. So I guess to kind of wrap up and summarize things in, I would say, number one, just energy efficiency, not being an environmental catastrophe, and all of those nice things.

Starting point is 00:16:29 Number two, making it possible for regular people to directly participate in the blockchain as a writer to the blockchain by which I mean a transaction sender. Number three, making it possible for regular people to participate in the blockchain as a reader of the blockchain, as a direct reading of the blockchain, without relying on any kind of trusted APIs. and number four, making it possible for regular people to participate in the blockchain as a participant in the consensus. And if you take two, three, and four per together, then you can get a very high level of censorship resistance, a kind of robustness, resistance to social and political attacks, even at a very large scale. So you mentioned, you know, like I guess a couple words I would use

Starting point is 00:17:18 to summarize some of that is permissionless, decentralized, you know, non-neutral, those are important values kind of embedded in the design. What type of constraints, I guess, did you have? Like, it's trickier to design a system that embodies those values and it's easier to take shortcuts. And I guess some of the question that some of the ETH killers, another alternative layer one chains are sort of asking is, well, do people really care about these things, Vitalik? Is it fine just to have maybe a little bit of decentralization? Why did Ethereum choose to be at one end of the spectrum in the way that it did? Right.

Starting point is 00:18:00 I think trying to take a more centralized path is the sort of thing that works well in the short term, but it ends up really biting you in the long term. So, like, you know, we have seen real live examples of, and of centralization vectors of chains being used to do things that are very disapproved of by their users, right? And I think a lot of the most egregious examples we can see in the context of some of the DPLS chains. So one example of this being how Steam got taken over by Justin Sun, who then proceeded to

Starting point is 00:18:45 establish and cement control over the delegates. And one of those users started to rebel the Justin and the people he was colluding with ended up doing a lot of just increasingly authoritarian things on that chain until eventually the users ended up having to fork away. And in the context of EOS, for example, we've seen a lot of a kind of bribing attacks between different delegates.

Starting point is 00:19:16 So I think core participants of a blockchain ecosystem becoming unfriendly and colluding against their user's interests is something that is not just theoretical. It's something of which we have seen in very real examples. And there's very real things

Starting point is 00:19:39 that people potentially might wants to do, right? Like people might want to push through some unpopular and of hard fork where they just give themselves coins, for example, right? Like that kind of political, kind of arguments and manipulation around things like developer funds is something that we have seen. So I think absolutely, even just from the evidence that we can see here today, there's a lot of signs that show that creating a blockchain where all you're doing is just creating a kind of voting scheme somewhere between 10 and 50 fairly large actors, actually in the long run is potentially a pretty dangerous thing.

Starting point is 00:20:24 So you do think, in a nutshell, that users in the long run will very much value these characteristics of permissionlessness, decentralization, and neutrality. Absolutely. I think the importance of these characteristics, I think, I think, sometimes takes time to reveal itself because there's this phenomenon that when a community is harmonious

Starting point is 00:20:50 and when times are good and if all governance mechanisms tends to give the same result and it's a good one. So regardless of whether you have a market or a democracy or a dictatorship or whatever else, when kind of times are happy and people are roughly on the same page,

Starting point is 00:21:05 then just all of these mechanisms are just going to lead to and the same thing because everyone knows what everyone is going for. And there just is one result, no matter what path you take, and it's a fairly happy one. But it's when there are disagreements and disputes that you start to see a lot of these differences emerge. And when there are disagreements and disputes, which is something that is going to happen to every chain eventually,

Starting point is 00:21:36 then the differences between, you know, truly, decentralized systems like Bitcoin and Ethereum and things like these much more centralized chains. It just is going to reveal itself very strongly, and a lot of people are going to potentially get nasty surprises. Are you seeing any other chains that embrace these values besides like a Bitcoin or an Ethereum? There are some. So like one example of this, like Koda or and it renamed it. itself, I think, because of some stupid trademark thing. They are trying to create a blockchain that's just fully a ZK provable.

Starting point is 00:22:22 So the idea would be that instead of having to personally verify the chain, you would be able to just use one ZK snark to fully verify the validity of the thing. And I think that kind of approach is fully in line with those principles, because it basically means that no matter how much activity is happening, there's no way to sneak an invalid chain through because, well, you can't generate a fake proof. I mean, Nimble is another example of this. And there's a lot of smaller chains in the kind of Bitcoin course expanded universe, so to speak, that are trying to implement these values to various extents. And then in the case, of Ethereum and I think Ethereum Classic is also one chain that values these things, though they're

Starting point is 00:23:11 taking an even more purest approach to them, kind of not doing sharding, for example, seriously considering reducing block numbers and so forth. So it definitely is a niche that some projects are going towards, though I think the number of projects that try to access this niche that the market can sustain is much smaller than the number of, kind of quote-unquote, feature projects that the market can support. Basically, because if you make a feature project, there's lots of different features that you can go after. But if you kind of embrace neutrality and you embrace user sovereignty and embrace freedom, then there's like a much more limited number of ways in which that can happen. So I do expect that the number of more decentralization focus

Starting point is 00:24:03 chains is going in small, but I think the chains that can't take the path and they can stick to it are going to be very successful. Backing up, Vitalik, we have these principles, right, that we've just gone over. Like, we need a blockchain to be adequately decentralized for obvious reasons or else there are any, any centralization is a vector for attack. We also need a blockchain to be scalable, because if it can't be scalable, then as you alluded to, that leaves room for, you know, a new form of centralization to come in. usually through some form of intermediary.

Starting point is 00:24:37 And back in 2015, when Ethereum 1.0 was rolled out, we had, the social contractor on Ethereum had picked out some long-term solutions to, you know, changing Ethereum from what it was about to be in, to what it wanted to be in the long-term, mainly proof of stake and sharding. And if, you know, correct me if I'm wrong, but I think proof of stake and sharding were kind of more or less chosen as, strategies for improving Ethereum, even before Ethereum 1.0 was rolled out. How did we have such strong assurances that these were the right solutions at the time? So I definitely think that a large portion of the community considered proof of stake in sharding

Starting point is 00:25:21 to be part of the social contract from all the way back in 2015 or potentially even earlier. The Dow Fork might have been the moments that have cemented those things because a lot of the people that really seriously oppose proof of stake in charting ended up also really seriously opposing the Dow Fork, and so they ended up going to the ETC side. As for why we are sure, I think one thing that's important to note is that it took a while for us to be sure, right? Like, if you go back to the very first proof of state related blog post that I made, this is the blog post that's introducing Slashr, then, and you read what that blog post says, you know, you see a disclaimer right at the top. The purpose of this post is not to say that Ethereum will be

Starting point is 00:26:07 using Slashr in place of Deager as its main mining function. Rather, Slashr is a useful construct to have an award chest in case Bureau of Stake mining becomes substantially more popular or a compelling reason is provided to switch. Swasher may also benefit other currencies of which to exist independently of Ethereum, thanks to Takao Time for Inspiration and for Jack Walker for improvement suggestions. So if you go back to January 2014, we're absolutely not certain that proof of steak does not have fundamental flaws in it, right? And if you look at the posts that we had trying to figure out sharding, like sharning was described as an unsolved problem.

Starting point is 00:26:42 And it was described in a list of unsolved problems along with other problems that we recognize today are, you know, either unsolvable or unsolvable without very fundamental tradeoffs. So the post I'm thinking about here was one from 2014, the group is called something like hard problems in the cryptocurrency. So this was early 20. Then all the way throughout 2014, the big kind of philosophical expedition that we went on is trying to figure out basically whether or not proof of stake can get around the nothing at stake problem. And eventually we came to this conclusion that I expressed in my blog post called How I Learns to Love Week subjectivity. And basically said, no, it's not possible with proof of stake to get exactly the same.

Starting point is 00:27:33 of properties as a proof of work, but it's possible to get something that's reasonably close, and here are some strong arguments for why I think it's close enough, right? And so that was probably the first major step, and then the second major step was around 2016 to 2017, when we kind of really wrapped our heads around how the other major class of a consensus mechanisms and of academic, you know, Lamport, D, D, Dwork Lynch, Stockmeyer, PBFT style. BFT consent, this algorithms worked, and really kind of deeply understood, like, basically, how they actually work and how they fit into a proof-of-stake security model and a proof-of-stake context. So I think after those two discoveries together, proof-of-stake was kind of basically set,

Starting point is 00:28:27 and the question was just discussing the details. And on the sharding side, it was largely a question of, like, what security models that we were comfortable with. So around 2015 or so is when we started thinking about random sampling, which was the first major kind of breakthrough toward making sharding work. And then in 2017, there was that major breakthrough of data availability proofs that allows sharded blockchains to be secure even in a, dishonest a majority, I'm sorry, context. So even in the context of a 51% attack, an attacker can't force an invalid chain through. So after those discoveries, I think we were pretty set that sharding is a reasonable strategy. And at that point, and I think people were broadly comfortable with both of those major pieces and if things kept proceeding from there. So if you could put yourself in your own shoes of your 2015 version, and in July 2015, the Ethereum blockchain rolls out. At that time, how far away did you think that proof of stake was going to be?

Starting point is 00:29:39 I think we were definitely expecting something like one to one and a half years, which is, of course, proves to be wildly over-optimistic, as a lot of timing things ended up proving to be wildly over-optimistic in, all parts of the crypto space, you know, whether it's things in Ethereum or things in the landing network or things in some of the quote Ethereum killer projects. But I think in 2015, we're definitely kind of confidence that we will arrive at a proof of stake system and be able to implement it. And also at that time, I do want to hang on proof of stake for a little bit more, but also at that time when the Ethereum blockchain was just rolling out, what was the sort of consensus around the monetary policy of ether or the issuance schedule? Or is this even like a big subject at the time? It was. And the conclusions that we had then are actually quite

Starting point is 00:30:35 different from the conclusions that we have now. So if you go back and read the Ethereum white paper, there's a proposed issuance schedule that basically says that there would be about 16 million that gets issued every year and this issuance would continue forever. And the rationale was for this was, one, there is a belief that you need ongoing issuance for security. There was definitely no certainty that proof of state could come in and offer security at a much lower cost than proof of work. We were assuming proof of work forever. And three, there was this fairness argument that said that, you know, we want to be accessible to people who exist in the future and not just people who exist in the present. So those were, kind of the major arguments that we had

Starting point is 00:31:22 at the time. And since then, obviously, both of the Ethereum community, and I think a lot of us have come around to this and if issuance minimalist or minimum viable issuance, I guess, as the frame philosophy. And we've come around to proof of stake and we've come around to issuance reductions. And I think a couple of things happened there, right? So one of the things that happens there is just us becoming convinced that proof of stake was feasible and proof of stake was necessary. But another thing that happened was the dream of proof of work being an egalitarian distribution model just slowly kind of suffocated and died over the last few years, I guess. Right.

Starting point is 00:32:02 Like in 2010 to 2013, proof of work was this very democratic thing where one of the selling features of Bitcoin is that, you, yes, you can go turn on your computer and you can get a few units. and you know, compare with how a fiat currency works, where to issue it, you need to be a large, you know, commercial or central bank. Here, anyone on their own computer can make some Bitcoin. And I think this was a major appeal of proof of work. It was a major appeal of Bitcoin. But the reality is that that was never a long-term technologically stable equilibrium, because as soon as you have a large source of revenue, eventually people will specialize and people will optimize their way to, to get at it before everyone else does, right?

Starting point is 00:32:48 And in Bitcoin, we saw the GPU revolution, then right after that, the FPGA revolution, then right after that the ASIC revolution. And in the case of Ethereum, we deliberately designed the proof of our algorithm to be ASIC resistant with the goal of preserving the egalitarianism of Ethereum mining, basically.

Starting point is 00:33:10 But then over time, we saw both how even a GPU, based system can become more and more resource and money dependent over time, and also just growing risks that ETHASH itself would get ASIC at some point. And so we just recognized that this dream of being an egalitarian by being a Hebrew work system

Starting point is 00:33:36 was something that was just not feasible regardlessness of benefit that was no longer there. And so without that benefit, then, you know, the question is, well, do you issue ETH to a class of existing rich people or do you issue ETH or try to not issue ETH at all? And so the second started of looking more attractive. The assumption being made is that any proof of work system ultimately moves towards A6, no matter what, right?

Starting point is 00:34:05 And I think this is pretty much a true assumption that any proof of work system, if there's value there, there is therefore the incentive to design. such a computer that is harder and harder to be accessed by retail, right? And this is why Ethereum chose GPU mining as a starting point, right? Because GPUs you can buy in your local consumer hardware store. A lot of people already own them in their gaming computer. And as a function of decentralization, if you can validate the blockchain on GPUs, there are more possible people that can validate the blockchain.

Starting point is 00:34:39 But the worry here was that, you know, and especially with ether issuance, the worry was that people, specialists, were going to come in and turn this into a business that would out-compete individuals, right? And if we are continuing to issue ether at a rate, which also, the goal of issuing ether was to also get ether into the hands of many people, right, through distribution, through issuance. But the concern was that the ether being issued was just only going to go to the people that had specialized in mining. And would you say that this is a a persistent critique of mining regardless of the blockchain, or is this specific to Ethereum? I think it's a critique of mining regardless of the blockchain. I think Bitcoin mining is basically

Starting point is 00:35:24 plutocratic already. For Ethereum mining, realistically, it's only a matter of time. And were there not this dangling threat of moving to either product power or some other algorithm or just accelerating proof of stake, then it may well have been a Sikh to much more strongly already. And I think any algorithm that tries to be ASIC resistant, unfortunately, only has some shelf life within which that continues to be true. So at this time, this decision was being made. Was it clear that proof of stake would actually enable the reduction of eth issuance by being able to provide more or equal levels of security with less issuance of ether? And when we released the white paper as part of the sale, we,

Starting point is 00:36:11 definitely knew that proof of stake was something we were very interested in and was a possibility. But we were definitely not confident enough in the eventual possibility of a proof of stake to market it as a certainty, which is a big part of why we made the decision to advertise the Eiff at the time as something that would have an issuance of a 16 million tokens a year forever. One of the really good things that I like about how Ethereum has rolled out is as a proof of stake system, is that it started as a proof of work system, specifically started as a GPU mining system. Like GPU miners to this day are still viable. And as a system for distributing ether,

Starting point is 00:36:49 I think this has been really good. It's been a great way to sprinkler around a bunch of ether around the world to people that are running GPUs, right? It's good for ether distribution, which is important for decentralization, especially in proof of stake, because the distribution of ether is a centralization vector that we have to pay attention.

Starting point is 00:37:09 to. But it seems that in proof of stake Ethereum, we have sacrificed this wonderful feature of ether distribution in the name of securing proof of stake. Would you like to see a way for, you know, a different way for further ether distribution? Or are you relatively satisfied with how distributed it is today? I think the challenge with cryptocurrency distribution mechanisms is that coming up with mechanisms that are credibly neutral is hard. The thing with proof of work that's nice is that it's an algorithm, and so it's credibly neutral because, well, people know what the algorithm is. Anyone can verify that someone made a valid solution.

Starting point is 00:37:58 Whereas if you were to try some other alternative, like, for example, one thing that Ripple did was they just had a bunch of giveaways through, you know, social media channels and other kind of weak identity channels. And the problem varies. Well, do you know, do you know is that actually, did they actually do it honestly? Did they cheat in some way? Did some hacker who had 10,000 accounts cheat in some way? Were they being fair by using these platforms and forgetting about the Chinese platforms?

Starting point is 00:38:26 They're right about the Indian platforms. And, you know, if you try to basically get to some kind of per person-based issuance, you just start running into all these quagmire's so that you really don't want to see a base layer of blockchain and necessarily getting involved in. Whereas the proof of work issuance is much more neutral. I mean, proof of stake issuance is much more neutral as well, though it's not really a, an of distribution mechanism because proof of stake just distributes to existing holders. So it's a good strategy for paying holders to do things like helping secure the network, but, you know, it's not going to make the currency more widely distributed in any way.

Starting point is 00:39:04 So the lack of a credibly neutral distribution mechanism other than proof of work and proof of stake is one of the challenges. And then the other challenges that any new components to the distribution is just bound to be controversial and potentially difficult to get accepted. So between those two challenges, I think it definitely is difficult to add a new issuance components, but we'll see. one critique I often hear of proof of stake is that it locks people in to a certain extent, right? Like if you are a staker at genesis of proof of stake, you can be a staker for the rest of time. In stark contrast, if you are a Bitcoin miner, you always have to be, you know, keeping up to date with technology, keeping up to date with efficiency, always updating your system and improving over time. And if you don't do that, then you get wiped out by other miners who do do this, right? So stakers are locked in forever.

Starting point is 00:40:03 And Bitcoiners don't really like that because it kind of seems similar to the cantalon effect where maybe the stakers are closer to the issuance of new ether than the rest of the world. And so they have undue access to the issuance of new ether. And if you are a staker today, you can be a staker in 50, 100, maybe a thousand. thousand years. And so, like, there isn't really this churn of new sets of stakers that are able to come in without, you know, having to purchase a bunch of ether. Is this bad? So, I mean, I do think that there is something to that critique. Like, I definitely don't think that proof of stake is, you know, 100% better than proof of work in every way. Like, I think it's maybe, you know, 80% and 85 or 90%

Starting point is 00:40:52 better. And this is one of those areas where proof of work does have a kind of genuine advantage in terms of reducing the possibility of long-term capture. The things that I would say in response to that, though, is so one, the proof of work industry right now is fairly young. So, of course, it's going to see disruptions once every year or a couple of years. But there's no evidence that a mature proof of work industry is going to continue having the same properties. In fact, one of the things that Bitcoin people talk about in the long run is this concept of a thermoids dynamic limit, that there is this cap of basically a minimum cost of generating a valid hash solution. And once miners start getting close to this cap, then, well,

Starting point is 00:41:45 it's physically impossible to get even more efficient than that. So, like, what do you do? Right? So, like, even in the medium term, there's definitely a possibility that the industry of generating this hardware is going to ossify more. So that's critique number one. Critic number two is that, you know, even though proof of stake and being a staker is, kind of, quote, being closer to the faucet of a new money, it's also something that's

Starting point is 00:42:13 open for any eath holder to participate in. Oh, right? So if you have 32 Eath, you can go at stake it. If you have less than 32E, if you can go join some others and start staking through a pool. Whereas in a proof of war context, like, unless you have tens or hundreds of million dollars to start creating an ASIC farm, you know, you can't kind of get at this tab yourself. Right. So that's probably the second thing. So, you know, isn't that much of a wealth concentration risk if anyone can participate?

Starting point is 00:42:44 Number three is that rewards in proof of stake are much lower in an absolute sense. Right? Like we're talking about, no, maybe 15% if only 1% of each holders are participating, but then if more people start participating, then it starts going down to 5%, 3%, 2%. And so the rate at which of wealth grows if everyone starts staking is much smaller than the kinds of income that you could potentially get as a proof of work. participant. So I guess to summarize, there is definitely this genuine advantage of proof of work having this set of built-in churn property. But at the same time, the fact that this

Starting point is 00:43:28 shurn is high today is absolutely not evidence that it's going to continue to be high tomorrow. Number two is that in proof of stake, just getting in and becoming part of this set of validated yourself is much easier and more accessible. Number three, it just matters much less because the revenue of being a staker is much lower than the revenue of being a minor. And then number four, a really important thing is like, well, you know, if someone does end up just like sitting there for a long time and eventually getting to more than 51% of all the hashbow or all the stake, like what can they do about it?

Starting point is 00:44:06 And proof of stake opens much more recourse for a community to recover from a 51% attack than proof of work does. And this is, I think, another one of those important topics that's a advantage of proof of stake that I think a lot of people don't appreciate, which is that in a proof of work system, if 51% of the miners attack, what can you do? You just let the attack happen. Maybe you kind of soft fork it out. Well, if you soft work it out, okay, fine. The attacker can just attack the chain again. And then you can attack the chain again and again. I call this a spawn camp attack.

Starting point is 00:44:40 That's the terminology that I used, a reference to a spawn camp in, you know, like warcraft and so forth. You just keep attacking the chain. You just keep making it dead. And the only way to recover from a spawn camp attack is to change the proof of war algorithm, right? But then if you change the proof of work algorithm, one problem is that you're not just breaking the attackers minors, you're also breaking all of the good guys minors. So it's a more inexpensive and higher collateral damage strategy.

Starting point is 00:45:08 And the second problem is that you can only change the proof of work algorithm once, right? Because if you change it once, then nobody's going to have an ASIC for the new algorithm. And then if the attacker manages to also quarter the market on CPUs or GPUs, then they can spawn camp a second time. And the second time you can't break out at all. Right. So in proof of work, recovery from persistent 51% attacks is actually kind of bleak. In a proof of stake context, it's a very different story because if there's a 51% attack on a proof of stake system, what you can do is you can have a fork. And in this fork, a kind of minority coordinated user-activated soft fork that basically consists of the victims of the 51% attack getting together and continuing the original chain and ignoring the attacker box.

Starting point is 00:45:55 In that fork, you can just basically delete the attacker's coins. And you don't even need to have an explicit heart fork to delete the attacker's coins. Like actually, the Ethereum Protocol just like does this by defaults because of how the inactivity leak works. Right? Like in a minority fork, whoever the majority is just loses half of their eth to inactivity leaks before finality happens. And so every time there's a 51% attack, even if it succeeds, the attacker loses a lot of money. And if they want a 51% attack a second time, they have to lose a lot of, money again. And so

Starting point is 00:46:30 the economics are just incredibly unfavorable to an attacker in a way they just aren't in a proof of work context. So that's probably the fourth kind of more underestimated rebuttal, which is that

Starting point is 00:46:46 if someone does get to 51% attack, well, you know, so what? Like if they end up doing anything bad with their powers, they just always run the risk of the community getting angry and just like forking them out and ends up boarding half their money. It feels like an example of some hidden social recovery

Starting point is 00:47:03 that actually exists in a proof of stake system like Ethereum. And I think what you're saying is like something like Bitcoin is, it's harder to recover, you know, socially from an attack like that. I'm kind of struck by some of the language we've all used so far, right? When we talk about, you know, some of the things have changed. You were talking about issuance earlier where you thought originally, you know, and people in Ethereum thought originally that we would have some sort of perpetual issuance to ETH. And then we said, you know, we decided or we've used terms like our values to make changes to

Starting point is 00:47:39 minimum viable issuance and things like that. I guess my question is this. How do we even know what our values are? Good question. I mean, I think the biggest way that we can be sure about what our values are is just by talking about them. So this is something that I think, think, you know, we're doing right now in this podcast. It's something that I do in my writings and blog posts. It's something that a lot of other Ethereum developers do in their writings and posts and their presentations. And, you know, just understanding and of what we kind of care about and what's important to what's and we're trying to accomplish, I think, is just an important step in

Starting point is 00:48:24 getting everyone on the same page. And then I think beyond that, once there's some kind of level of basic agreements on the priorities

Starting point is 00:48:40 or when there's priorities that some people feel a lot really strongly about other people care less about. Well, you know, usually we can still kind of do some thinking and do some research and engineering and to come up with a design that ends up getting out of the property is that everyone is going after at the same time, which is something that Ethereum 2.0, for example, has managed to accomplish on at least several occasions. It also appears to be the case that when we kind

Starting point is 00:49:05 of state our values as an Ethereum community, and even as the bankless community, this is kind of similar, we start to draw other people in who also embrace those values. So it seems to be sort of a magnet. And then what we end up doing is we start embedding those values into code, and then people who subscribe to that value set can then opt in. Is that kind of how it works? Absolutely. I think the applications that you use are definitely another important way of expressing your values and kind of helping your values succeed within the Bankless Nation. One example of this is Uniswap. So Uniswap is definitely. itself a very values-driven project. It started as a project that was just trying to build a

Starting point is 00:49:56 maximally simple, easy-to-use decentralized exchange at a time when all of the other projects were going for complexity. They were going for certain kinds of theoretical cleanness, or they were going for just centralization. And Uniswap in some ways, it just kind of said, screw you to a lot of things that people thought were fundamental to an exchange, like even the concept of an order book. And, you know, they were criticized for this, but they just kind of pulled through and published this thing that was just a contract. Anyone can go interact with a contract. No dependence on servers, you know, very kind of purist about it. It's just a webpage that talks to a contract. People can go use it. And over time, more and more people did use it. And in 2020, Uniswap,

Starting point is 00:50:47 has taken over even many major centralized exchanges and volume, and it's become a mainstay of the Ethereum ecosystem. So I think even just things like that also help to express and cement the kinds of things that the Ethereum ecosystem considers to be important. This is also why I know Vitalik you've spoken on kind of chain maximalism in the past, and I agree with pretty much everything you've said on that subject. But there's also something I think that's pernicious, pernicious, in kind of the broader cryptic community, which is like chain relativism, right? So not all chains and not all projects, even on Ethereum,

Starting point is 00:51:25 embrace the same value sets. And we kind of like, like we kind of have to choose by using an application or using a chain, what our values actually are. Do you think that there is a risk of chain relativism where everyone's like, yeah, every chain is the same. Tron is the same as Ethereum and they all are like public blockchains and that sort of thing. Is that a risk we run? Should we make our values a bit more explicit? What's your take on that? I think there definitely is a risk from chains that just care less about values to try to kind of market the idea that those values are not really that important.

Starting point is 00:52:10 And to some extent, you could argue that that's kind of symmetric to things that Ethereum is doing. relative to the Bitcoin ecosystem, for example. So like, you know, Ethereum has proof of stake. Bitcoin has proof of work, and Ethereum people do argue that, you know, the kind of quote, objectivity that proof of work provides is actually not that much better than the, you know, quote, weak subjectivity that proof of stake provides. And this is one of those kind of big academic debates where, and I think from the Bitcoin point of view, it definitely gets, I'm sure, interpreted as kind of trying to dilute the

Starting point is 00:52:47 concept of decentralization into nothingness, but ultimately, like, whether or not an instance of that is kind of reasonable or not reasonable, you can't figure it out from the abstract. You have to, like, actually dig into the technical arguments and kind of actually understand what's going on. And I think within a technical audience, I think people understand, I know, what Bitcoin is going for and what Ethereum is going for. And they understand. understand that things that Tron is trying to do, for example, are just fundamentally not interesting. Like, okay, it has more scalability because it's more centralized, that kind of whoopty-do and whatever, right? And so there are kind of less technical people that still get drawn in, which is, I think, definitely a big concern.

Starting point is 00:53:38 and I definitely do think that the Ethereum ecosystem can be just kind of more forceful and more clear about, you know, what are the important properties that make Ethereum applications be Ethereum applications. Though at the same time, like I do feel like within at least out of the more technically inclined portion of the community, that message is already getting through to a large extent. I mean, there's definitely also the entire spectrum of projects that are kind of more centralized than Ethereum but are not outright scanny in the way that drawn is. You know, do you have all of the various chains that are making a serious effort at doing, you know, 5,000 on-chain TPS without charting at the cost of decentralized verifiability? And I think, you know, in addition to the debate that's happening within the Ethereum ecosystem, there's definitely a kind of crypto ecosystem-wide debate that's happening,

Starting point is 00:54:46 both on the level of people arguing and on the level of just real-life events happening. That is about, you know, to what extent are kind of different values important to making a, blockchain project successful in the long term. And I don't think there's any way around this other than just to recognize that the Ethereum ecosystem is a participant in the debate. And we have some particular positions. And we think that those positions are the correct ones. And we should both be vigilant and make sure that we have the correct positions.

Starting point is 00:55:26 And if we don't sort of be open to changing our minds on certain issues, which I think we have on a couple of occasions. But where we are correct, just make sure that we can explain to the broader ecosystem and the world why we've made the trade-offs that we have. Your Ethereum address is a bankless bank account, but here's the problem. It doesn't have a human readable name. It's represented by this long hexadecimal string that no one can read. Unstoppable domains has the solution to that problem.

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Starting point is 00:58:55 responsibility or to express their values by staking ether on proof of stake Ethereum? Yeah, and I view staking as being a kind of a sort of decoration that you're a type of a citizen of the Ethereum network, I guess. You know, it's definitely not the only type of being a citizen of the Ethereum network. And there's lots of ways to participate. If you have a less than 32 if, even if you have less than 32Eth, you can still stake as part of a pool. But, you know, there's definitely other things that you can do. But just running a node signals, you know, long-term dedication to the network and an interest in of helping to keep the network maximally centralized and secure. And at the same time, it's a source of ongoing revenue, and it's a

Starting point is 00:59:53 source of ongoing incentive alignment with the security of the Ethereum blockchain and the success of the ecosystem. So for people that aren't staking, should they still be running a node, or is it more relevant for some types of people to run a node versus others? So I definitely believe in the idea that even if you're not staking, you should be trying to validate the Ethereum blockchain as much as possible. And I talk about why validation is important in a couple of posts, right? So if you go to vatallic.ca, one of the more recent ones is a philosophy of blockchain validation. One of the ones earlier was engineering security through coordination problems, and then hard for itself, defaults, and coercion.

Starting point is 01:00:42 In some of these posts, I talk about the reasons why I think it is important to have a culture where as many users as possible actually run nodes that personally validate the chain in various ways. And there's different levels of validation that you can have, right? So like in a shorting context, for example, you're not going to be literally checking every single thing yourself. But there's techniques like data availability validation, for example, where you can probabilistically validate correctness. You can validate the beacon chain chart. You can be checking fraud proofs. You can run a stateless client. You can even run a light client, which is better than, you know, trusting subserver.

Starting point is 01:01:20 And it definitely is, I think, healthier for the ecosystem, the more people do those things. And it's healthier for the ecosystem, the more we do to make it easy for people to do those things. Like I, for example, am definitely unhappy with the fact that, you know, Metamaska, for example, is just a client. that directly talks to inferior or whatever. I mean, I recognize that kind of the reality is that there isn't really much of a better way right now, but this is absolutely something that we should be trying to engineer our way past. And there's a lot of great projects that are trying to engineer their way past it. And even EF2, for example, is designs to have a much simpler and better light client than ETH1 does.

Starting point is 01:02:02 So we hope that things like Metamask and things like status can end up adopting it over time. Vitalik, we've spent a lot of time talking about proof of stake and the origins of it. Can you talk about maybe the origins of sharding? It was theorized as the most likely candidate for Ethereum scaling, kind of narrowed down, it sounds like, as you evaluated and eth researchers evaluated other alternatives. But how was this determination made? Like, why sharding? Research and thinking about sharding definitely started.

Starting point is 01:02:37 as early as 2014. And I think the mindset there was just, it was fairly obvious right from the beginning that everyone validating every transaction is the simplest and dumbest thing that you can do in terms of creating a blockchain that satisfies the security property that for a block to get accepted, it needs to be valid and available.

Starting point is 01:03:04 And there was a natural desire to just, like we'll see, well, hmm, you know, maybe if we can do some research and do some hard thinking, there is a much more efficient and a better approach. And in general, I think I was kind of inspired by the out of computer science that I had learned over the last couple of years. And one of the things that my computer science kind of really instilled on me is that like in a lot of computing problems, there's a very simple algorithm. that can achieve a one level of efficiency, but then there usually is an algorithm

Starting point is 01:03:42 that's only somewhat more complex that can achieve something close to optimal efficiency, right? One example of this is if you look at just like sorting, right? Like if you have a list of numbers, can you rearrange them in kind of lowest, greatest order? And if you just ask someone who's never heard of sorting before to come up with a sorting algorithm,

Starting point is 01:04:03 they generally come up with an algorithm that says something like, you know, walk through the list, take the lowest number, take it out, walk through the list again, take the lowest number, take it out, and keep going until the list becomes empty. And that kind of algorithm has a runtime of what's called O of N squared, right? So whatever the length of the list is, square that number, and that's how long it takes to run. If you have a list of length 10, it'll take 100 steps. If you have a list of like 20, it'll take 400 steps.

Starting point is 01:04:28 If you have a list of like 1,000, it'll take a million steps and so forth. But quadratics are going to 0 of n squared sorting is not the most efficient way of sorting, right? And it turns out that there are these medium clever techniques. There's merge sort, quick sort, a whole bunch of other sorts, that instead of taking n squared time, they take kind of n-log-n time. So n-log-in, like a simple kind of non-mathy way of thinking about is like N multiplied by the number of digits in N. So for example, if the list has a length of 100, then it will be like 100 times

Starting point is 01:05:01 three because the number 100 has three digits. And then if a thousand items, it would take 4,000 steps because 1,000 times, a number of digits and 1,000 is 4. In reality, it's not like decimal digits. It's binary digits, so it'll be a couple of times longer than that. But, you know, that's basically what you get to, right? And you can see how these algorithms, like, if you understand how they work,

Starting point is 01:05:23 they still feel very kind of mathematically clean and neat. They definitely are somewhat more complex than the naive ones. But they do take kind of a lot of conceptual thinking to get to them. And so the kind of vague hope that we had in 2014 is, well, if you imagine just naively validating every block as being the equivalent of insertion sort, right? The equivalent of one of these naive sorting algorithms that take n-square time, where if you have a thousand item list, it takes a million steps to run, then, you know, what is the equivalent of like quick sort or burg sort? What is the equivalent of this other algorithm that takes a lot of brain power to feel? figure out only a medium amount of brain power to understand, but that gives much better results. What is the equivalent of that? And can we search for it and get at it? And sharding quickly emerged

Starting point is 01:06:21 as being one of the kind of ideal strategies or categories of strategies in this regard. And it was kind of obvious, right? Because, well, if you want to do something better than everyone valuing everything, then you need everyone to only evaluate a few things. And then the question is, well, how do you make it be secure against kind of what we call 1% attacks, where an attacker, with a small amount of hash power, tries to concentrate their hash power on one particular subset of the chain and just caused that subset of the chain to break. And so we did a lot of thinking, and, you know, eventually we actually did come up with a couple of quite clever strategies to get around those kinds of risks.

Starting point is 01:07:01 And basically that's where sharding came from. And basically sharding is kind of like replicating the Ethereum main chain, right? And the ETH2 design, it's, you know, currently like 64 kind of replicas, all sort of governed by a beacon chain. Just to add a bit. The really important thing that makes sharding tick is the concept of that you don't have everyone from validating every committee, that you have on average every node only and gets assigned to validate a small portion of the blocks and the transactions, like either the get assigned to a shard or they get reassigned to a different chart every block or they have to, say, validate one transaction from each block and they get assigned to a random transaction index or something like that, right? So the key is to move away from everyone validates to a smaller number of randomly selected actors validate, which is a secret.

Starting point is 01:07:52 Why Vitalik do some people still think sharding is impossible? I hear that a lot still. I think there's a few different kind of classes of critics. So there's one class of critic, I think, that's just the, they're not very intellectual type that doesn't really understand the concepts of indirect validation, probabilistic validation, all these things. And it tends to have a very binary sort of thinking. And they say, you know, either you're validating or you're not. And either you're personally validating everything where the thing is centralized.

Starting point is 01:08:25 Which one are you? And then there is no more. kind of intellectual and nuanced critics that tend to express skepticism about, well, you know, what are these added assumptions that be as a sharding verification mechanisms are introducing? And, you know, do they potentially introduce kind of a lot of brittleness in reality? So, I mean, I could give one example of where the, like, this kind of brittleness might actually exist. So if you look at fraud proofs, so, for example, right?

Starting point is 01:08:57 So fraud proofs are this idea that, you know, instead of everyone validating everything, then you would have a small number of actors validate some computation and attest to the result of a computation. And the word attest here basically means they would publish a digitally signed message that contains the result. And this signed message can be verified by anyone that's coming from them. And they have some ETH that's deposited in a smart contract on the Ethereum chain. And if they attest to something incorrect, then someone else can be verified. challenge them, and if there's a challenge, that execution actually happens on the Ethereum chain, and if it turns out that they actually are wrong, then their deposit gets taken away.

Starting point is 01:09:35 Right. And so the idea is that, like, you know how in a lot of legal context, you would say things like, I swear under penalty of perjury that, you know, I believe blah, blah, blah is true, right? And then, like, if you make one of those statements and you swear under penalty of perjury, but you swear on your penalty of perjury is something that's totally false. Some of the time you'll get away with it, but some of the time someone will kind of catch you

Starting point is 01:10:04 and they might potentially like points to the fact that you actually said this and look it turns out it's not true and like let's have a court case about this and then that could end up either hurting your interests like really seriously in some legal case or potentially it could be used to

Starting point is 01:10:21 independently punish you pretty seriously in some way and so far. Right. And so the idea is basically that it's the same kind of principle that you replace direct verification of everything with this more scalable approach of a kind of trust, but probabilistically verify. Right. And so, okay, so that's what fraud proofs do.

Starting point is 01:10:44 The problem with fraud proofs. The problem with fraud proofs is basically the synchrony assumption, right? It is basically the assumption that there exists an active network and if someone sends something and they claim that that thing is valid, that that thing actually will reach one of these sentry nodes that's checking everything. And then if the century node discovers that it's wrong, and they broadcast a fraud proof, that that broad proof actually will reach and to make it onto the blockchain. So there is this assumption that basically the network is working,

Starting point is 01:11:14 and in a lot of cases that the network is working sufficiently quickly. And if this assumption is violated, then the fraud proof scheme stops working, right? like it's you know the equivalent of well you know if you attest to some statement in a court and then the court makes a bunch of decisions based on that statement and then you know

Starting point is 01:11:33 20 years later they discover that you just lied and everything but by that time you're already dead it's um so the equivalent of that in the blockchain land basically is what would happen if there's some large network failure or the chain got censored by 51% an attack or something similar.

Starting point is 01:11:54 And so basically, if you can avoid those kinds of assumptions, you should, right? And the interesting thing with sharding is that I feel like we actually have been really reducing the number of assumptions that we rely on over time. So, for example, before sharding relied on honest majority assumptions. Now it doesn't rely nearly as much on honest majority assumptions. So you can't get an invalid shorted block past someone, even if you control two-thirds of the validators. And so there's been a lot of hard work that's been done on kind of reducing these new

Starting point is 01:12:27 assumptions that these scaling techniques introduce. But there are still some assumptions that end up remaining. Fraud proofs, by the way, if we use ZK roll-ups, then we can get rid of the need for any fraud proofs. We can have sharding without fraud proofs, which is just amazing. It's something we did not even think was possible two years ago. So, and there's, like, basically, there definitely are some kind of intellectual critics that do, kind of get into the weeds of each of these things and they say, oh, well, you know,

Starting point is 01:12:56 decentralization is really, really, really important. And is even 100x gain and scalability worth it if the price of that gain and scalability is that you introduce this completely new category of unknown, unknown that would otherwise not exist. So I think, like, there is some legitimate critique, but like over time we have, I think, been addressing more and more of it. And so we have been more and more confident that charting is a good tradeoff. So, Vitalik, you recently posted something on E3, Search, a kind of a thought piece called Rollup-centric Roadmap with a question mark. And that provoked another sound bite that was sort of interesting. People asking, is sharding canceled, Vitalik? And I'm interested in your answer on that. I think it's probably going to be no. But I guess a follow-up question on that is, how are roll-ups actually different than shards? So the answer, of course, is no. But I mean, I can answer why the answer is no. So first of all, sharding is not canceled. And the reason why sharding is not canceled is that phase one, which provides sharding of data is not canceled. And phase one is sharding, right? Because phase one is a mechanism where each participant in the network only needs to download and verify a small portion of the data, which is the definition of sharding. And then from a user experience and what people actually

Starting point is 01:14:17 actually get perspective, sharding is also not canceled because the concept of Ethereum's TPS going up from 15 to many thousands is not canceled, and in fact, it's going to come even sooner than people thought it would. So shorting is coming, and sharding is coming sooner as a result of these refocings, in my opinion. What was the other question again? How roll-ups are actually different than shards? Yes, yes. This is a definitely good question. And it's an interesting question, right? Because a lot of the time people get hung up on and confused about the word sharding because they think of a shard as being a cluster of nodes. But that's never how we thought of sharding, right? The way that we thought of sharding is that a shard is a kind of logical subset of the blockchain and nodes get assigned to shards. And the node could be part of one shard, it could be part of two shards, or it could be part of all the shards.

Starting point is 01:15:16 And so in the case of a roll-up, what happens is that it's, it has some of the properties of sharding, but not all of the properties of sharding, right? So one of the properties of sharding that it has is this property that computation gets split apart, right? That if you have many different roll-ups, then computation in each of these roll-ups is done separately by separate subsets of participants. And this is the key thing that's responsible for getting them a scalability. So that's one place in which roll-ups are kind of like sharding. Another place where roll-ups are like sharding. I think you guys actually talked about this in one of your previous episodes. I think it was either with Hayden or someone or a paradigm person or someone else,

Starting point is 01:16:08 I'm talking about kind of the future of uniswap and market makers in a shortened context. You're talking about kind of, you know, the ethereum chain is being like Manhattan, then you have your suburbs. And roll-ups and shards, actually, from that economic standpoint, to have a very similar functionality because they are both,

Starting point is 01:16:30 the new terminology that we use is a domain. And what a domain is, it's a kind of collection of accounts or kind of a region of state, where you can have synchronous interaction between accounts within that region, but you can only have asynchronous interaction between that region and other regions.

Starting point is 01:16:46 So what I mean by synchronous interaction is like, for example, being able to, you know, take out a CDP from like maker or compound, then use some coins, stick them into uniswap, then do some arbitrage trade, then take the output, then stick that into AVE, and then do some other thing and just do a bunch of fancy stuff within one transaction, and then get the results. And if like something breaks, then you just immediately revert everything. For that kind of fancy magic to be possible, you need to be within the same domain. You need to be within the same environment where what we call synchronous execution is possible. Asynchronous execution is like, I send a transaction and that transaction gets in over here, and it's going to have an effect over there, but that effect is delayed. Like, for example, I send some ETH from shard A to shard B. I lose the ETH immediately, but you get the ETH in shard B like one slot later or two slots later.

Starting point is 01:17:40 And synchronous execution is possible within charts, synchronous execution is possible within roll-ups, but only asynchronous execution is possible between charts, and only a secretous execution is easy to implement between roll-ups. You have more relay to potentially design roll-ups, so you can sometimes do synchronous execution between them, but it's still a challenge. So that's another way in which shards and roll-ups are similar. One way in which shards and roll-ups are different is the security model. So in the case of just using roll-ups,

Starting point is 01:18:16 roll-ups all rely on the same data layer. And that data layer gets at least in the current ETH One system downloaded by everyone and verified by everyone. So there is still something which is being verified by everyone, and that something allows you to avoid some of the tradeoffs that are inherent in Yash shard. system. So that's one example of an area where shards and roll-ups are different. So I guess I just kind of summarizing again, like there are some similarities. There's some differences.

Starting point is 01:18:50 To the end-user, shards and roll-ups definitely feel very similar. Another really fun thing going down the road is that when we have ETH-2 and roll-ups at the same time and you have the roll-ups on top of EF-2, then different roll-ups might end up using different shards. You could have one roll-up that uses five shards, you could have five roll-ups that are sharing the same shard. So in that case, shards become this technical distinction that's just about kind of grouping data into blogs, and roll-ups are the more relevant kind of distinction in terms of domains that's more relevant to the experiences of individual users. So keeping on this roll-up-centric roadmap post, I read the post, and I think

Starting point is 01:19:35 thought it was fantastic, like very, very exciting, I would say. But could you describe like kind of what that post actually means about the role of the role of rollups in an ETH2 world? And what are the wins for the ETH community in a roll-up-centric roadmap? So I think this is a good opportunity to kind of cycle back a bit into the conversation on Ethereum values. And I think, you know, I talked a lot about how Ethereum values and Bitcoin values have a similarity. one place where there might be more difference, at least I feel, and then I'm sure people will accuse me to have bias for this and so on and so forth. But the Ethereum community really values pragmatism

Starting point is 01:20:18 and just valuing, you know, making decisions that make sense given just the context that's kind of standing right in front of us and what people and application developers need. And like this has played out in a couple of ways. Like one way, for example, is that Ethereum miners actually have been willing to raise the gas limit somewhat. And so instead of the burden of increased the demand for usage falling entirely on users facing higher transaction fees, some of the burden falls on users paying higher transaction fees, some of the burden falls on users having higher validation costs. And so, you know, on net, it's probably a better tradeoff than if we had just kind of stuck gung-ho to keeping one block size. But in this context, basically, the post had kind of two main themes to it.

Starting point is 01:21:09 The first main theme is just, you know, hey, look at reality. And so what I mean by that is if you look at the current reality of, you know, where Ethereum is, what kind of scaling is needed and what kind of scaling is there. Like, we see a few facts in front of us, right? One fact is that there's a dire need for scalability to increase and there's a dire need for this to happen quickly. Gas prices over the last couple of months have hit all the way up to 700 Gway on a couple of occasions. Now they're a bit lower, but they're still hovering around in the tens going up to 100 from time to time. So gas prices are still by historically standards astronomically high, and they're high enough to kick out many classes of applications that in many cases represent what we think Ethereum is there to accomplish, and especially on the non-financial side.

Starting point is 01:22:01 And so scaling is very important. So that's the one fact. Scaling is important, scaling is urgent. The second fact is that the technology that is available today or in the realistic near term to alleviate scaling is roll-ups. Roll-ups are the game.

Starting point is 01:22:18 Now, there are channels, but channels are very application-specific. There is plasma. Plasma works for payments, but it doesn't work well for general-purpose contracts. And so roll-ups are just a center piece of the game. And so we need to be serious about the fact that if we want medium-term scalability, people are going to be moving to roll-ups, and this isn't even a suggestion. This is just a recognition of the reality that's facing us. And then the second really interesting

Starting point is 01:22:46 thing is that if you look at the combination of roll-ups with just the way that the if two roadmap is rolling out, right, the ETH2 roadmap is rolling out of these multiple phases where phase zero is proof of stake, phase one is sharding of data, and phase two is sharding of execution. And it turns out that phase one, sharding of data, is actually the only thing that you need to put roll-ups on top of sharding and give us just really, really massive scalability. And so it turns out that if we're willing to kind of move over onto roll-ups, then not only will we get the scalability we direly need it today, but we'll also just get extremely huge scalability beyond our wildest streams as soon as

Starting point is 01:23:27 phase one. And so given these facts, there is both the, and of once again, the recognition of reality that roll-ups are the game for the medium-term future, but also there is the proposal that the Ethereum ecosystem should basically just dedicate itself to roll-ups as a strategy, and that the Ethereum ecosystem should not try to have its own baseware execution and should just rely on roll-ups as being its main mechanism for. for scaling applications. And I give two reasons for this. One of them is that roll-ups are going to be here sooner

Starting point is 01:24:03 and they'll have higher scalability. So why sacrifice the higher-scaleability thing for the lower-scalability thing? And the second reason that I give is that if we have a base chain that is more kind of retrenched and more focused, then we can reduce the number of new security assumptions that we have.

Starting point is 01:24:26 And in particular, we can avoid committee and fraud group assumptions. And this would significantly increase the security of the ETH 2 chain, which is wonderful. And it would allow the kind of roll-up ecosystem to basically just kind of do its own thing. And then the third, once again, kind of pragmatic part of this roadmap is basically the fact that, no, there is this kind of Ethereum satellite ecosystem of, as a Met Feinstone recently said, in his great post, I think it was Ethereum helpers or Ethereum enablers, and even Ethereum killers who are re-specking to being Ethereum enablers, which is just awesome.

Starting point is 01:25:07 And so basically, if we adopt this role-up-focused roadmap, then instead of EF2 kind of positioning itself to squash these projects, if ETH2 would be positioning itself to cooperate with these projects and to kind of be a platform where those projects can end up helping to just be its execution scaling layer on top, which creates a lot of synergy. It also creates a lot of room for these projects to do more experiments, also potentially do more public goods funding for the Ethereum ecosystem, and do a lot of other wonderful things that would not be possible for Ethereum to do by itself.

Starting point is 01:25:41 Brian started off this conversation asking the question, how are shards and roll-ups really all that different, right? And part of the answer is that roll-ups represent sort of this, you just said satellite, kind of like the satellite away from the main chain that has like a direct one-to-one bridge with the main chain. And I think what you just alluded to is that that same relationship can also happen with the quote-unquote eth killers, right, turning them into eth-enablers, Ethereum enablers. And so to me, and at the same time, we've also seen almost every single Ethereum app

Starting point is 01:26:14 announce some sort of L2 system, some sort of roll-up that they are going to leverage, right? And this happens, you know, every single day. There's like a news like, oh, we're hopping on to an L2. And so when so many different systems, applications on Ethereum or, you know, side chains or Ethereum killers are able to link into Ethereum directly via a rollup, via some sort of L2 system, how does that change the characterization of the L1? Right? Because that turns it into a place where everyone seems to be transacting, you know, sending tokens, buying, selling on Unoswap. You know, people are all living on L1. And it seems to be pushing them into living on L2s. How does this change how we are going to have our relationship with the L1 of Ethereum? So it definitely will be the case that a user's primary base is going to be generally an L2 system.

Starting point is 01:27:10 Right? So like I think in the longer, there may well be even be users that just go years using Ethereum without ever touching L1, without ever setting up an account inside of an L1. The main reason why a users might want to use an L1, one is, as part of moving between one or two and another, though even there you can save a lot on transaction fees by creating kind of optimized mass exit mechanisms. And two would be if some kind of L2 potentially breaks.

Starting point is 01:27:42 And three would be that there are some applications where it might make sense to have a kind of the core of the application be registered on the base chain and then have that application that have satellites of itself, so to speak, exist on the L2 side. So one example of this might be a token. And so if you issue a token, I'm predicting that the main way to issue a token is still going to be to have the base registry be on the Ethereum base chain directly. But then users and kind of intermediaries would just end up depositing that token into the L2 systems. And then you have a lot of people just doing things with that token directly on the L2 side.

Starting point is 01:28:19 So I definitely think that those second, those kinds of things are going to happen a lot, and there's definitely going to be some level of people figuring out, well, exactly what is that going to look like for any given applications? Do they want their application to live on a particular role-ups? And they want it to be cross-roll-up and so on. And that's one of those things that we're just going to have to figure out over the next day and a few months or a year or two. But I'm confident that we'll be able to. This is going to be a slow transition. We're going to see more and more applications start to migrate to later on time. Users are going to migrate more and more of their activity to a layer

Starting point is 01:29:03 two is over time. And I think we'll get through it. I think we'll be fine. Earlier in this podcast, you discussed how scalability is important because without scalability, you allow for the entrance of middlemen, right? And what Ryan and I have been discussing with bankless is that, you know, we like Bitcoin. Bitcoin's fantastic. But we are concerned that it is going to be a system that is basically gated through Bitcoin banks, right? Because if Bitcoin gets adopted completely and holistically, then there's not enough scale on Bitcoin for every single individual to be able to transact on the L1. And therefore, you know, people get pushed into like, hey, I'll send you Bitcoin through Coinbase. And Coinbase just settles with their own internal ledger rather than it being on the like the trustless, permission list,

Starting point is 01:29:52 open Bitcoin blockchain. It seems to be that roll-ups and L2s like them offer, you know, Ethereum-level capabilities of scale and execution environments and trustlessness that is exactly what you were talking about with like, well, with increased scale, we don't have to rely on centralized ledgers. We can use roll-up ledgers. And so is the conversation around roll-ups and reducing intermediaries, is that kind of what you were referring to at the beginning of this podcast? Yeah, and I think basically either people are going to be on a decentralized layer two or people are going to be on a centralized layer two. I mean, Coinbase is obviously one of the more blatant examples of a centralized layer too, but there's also more subtle examples like

Starting point is 01:30:36 there's permissions consortium chains, like, you know, we're seeing liquid, for example. And even in the Ethereum case, and there's definitely some applications that are moving to, either something like X-Dye or in the case of the Dark Forest game on, I think it was either the Robson or Gurley or one of those test nets. And it's completely understandable why that's happening because just the scalability for a kind of properly Ethereum connected system is not there yet. But it is something where we want to make the kind of properly decentralized and Jerusalem alternative actually available. So what about the possibility?

Starting point is 01:31:20 One of the things that everyone's concerned about with, you know, the sharding and also with roll-ups is composability. Because with defi currently, composability is kind of like our big thing, right? You mentioned a possible transaction where, you know, there's a flash loan from AVE that's trading on uniswap and D-Y-D-X and does everything at once, right? And, you know, sharding gets in the way of that. But then also, roll-ups also gets in the way of that as well. So I was hoping you could kind of just go through some of the, strategies for retaining composability. And then also, is there a possible way for each individual roll-up to have, you know,

Starting point is 01:31:58 a direct connection with each other that doesn't leverage the L-1? Sure. So I guess, first of all, there are some kind of application-specific strategies that can get you many, maybe most of the benefits of infcomposability, even in an asynchronous content. So one thing that I talk about, for example, is the concept of yanking. So the kind of big example problem that I often use is to talk about, and of synchronous composability is, and I credit Andrew Miller for this, and I think Andrew Miller himself credits basically mainstream,

Starting point is 01:32:37 a distributed system, textbooks, is the train and hotel problem. And the train and hotel problem basically says if you have a train on chart A, or if you have a train ticket booking contract on chart A and the hotel booking contract on chart B, then how do you book the train and the hotel in such a way that you ensure that you're booking either both the train in the hotel or neither, right? Because you don't want to have the train without the hotel and you don't want to have the hotel without the train. And if the train contract and the hotel contract are on the same chart, this is easy because

Starting point is 01:33:10 you just send a transaction which does like step one, book the train, step two book the hotel, and if either of those fails, you revert and reverting cancels both. In an asynchronous context, that this is much harder, right? And what you can do, though, is this mechanism called yanking. So the way yanking works is you design the train booking and hotel booking contract in such a way that you represent the permission to book a particular seat as a kind of separate discrete contract. So then step one, you will call the train booking contract on short A, and you basically create this kind of separate contract

Starting point is 01:33:47 that represents the right to book a particular seat. Step two, you do the same on the hotel side. Step three, you take the train seat booking contract and the hotel booking seat contract and you move them both to whatever shard you're on. Then step four, now that both of those are on the same chart, you do your synchronous transaction and you book both the train and the hotel,

Starting point is 01:34:11 and if either one fails, then you are kind of reversed. both. Now, the reason why this approach works is because it is definitely possible that, you know, because of asynchrony, blah, blah, something happens on one side, but not on the other side, the train gets booked or a hotel gets booked. But until you do that final step where you already have both of those contracts on the same chart, you actually haven't booked anything, right? So if, you know, you do this kind of separation and then someone else snaps up the train or someone else snaps up the hotel, then, you know, that's fine. You'll board, and you just basically wait some time and you try again. Or alternatively, if you bring the train and the hotel into your shard,

Starting point is 01:34:54 but then you go offline, then there might be a timeout, and then someone else can go book the train in the hotel, right? So you still have this kind of safety property because you're basically kind of doing an asynchronous pre-processing step where you kind of drag the permission to do whatever thing you want to do once on the same shard, and then only at the final step, you do everything on all of the kind of final commit steps at the same time on that one shard? And you might ask, well, why do we care about trains and what tells us,

Starting point is 01:35:20 but it turns out that this is a kind of excellent technical metaphor for a very wide class of, you know, decentralized exchange and, like, other defy things that people actually care about doing. So sometimes you can do things like that. And if you can, then this is wonderful. Now, if you can't, There is another alternative that roll-ups want us do.

Starting point is 01:35:41 And that alternative is basically that, you know, we just accept that some row-ups are going to be more focused on high-value applications and defy and they'll have higher gas prices and other roll-ups or are going to be focused on applications that have lower fees, but I do not have synchronous connection to the high-value stuff. And the other fun thing that we can do is, like, especially post-shorting, you can have a single roll-up that, talks to multiple charts, right? So you can have a single roll-up that uses the data from multiple shards, and so you can potentially have a roll-up that has scalability that combines together multiple shards, which is potentially really amazing. And if you do that, then you could imagine this kind of Defi-focused roll-up

Starting point is 01:36:27 as having scalability of many thousands of transactions per second, in which case it could just easily be enough for the kind of bulk of the important high-value activity to happen on there. So, yeah, and I guess in summary, you know, there's a combination of these different approaches. And I think any one of them can work well. And I think the market will kind of gravitate toward the thing that makes sense. So Vitalik, to wrap up this roll-up-centric roadmap section, like I guess some of the takeaways, the wins for the Ethereum community is, you know, A, you said it's pragmatic. This is happening now.

Starting point is 01:37:04 Two, it seems like speed, right? So this can happen as soon as ETH phase, ETH two, phase one, which is maybe a year away. My timeline, not yours. That's an estimate. The last thing I guess I'm phased. I'm a bit hazy on, though, in this roll-up-centric roadmap view, what changes in ETH-2 phase two? So do we even need state execution across these 64 shards?

Starting point is 01:37:31 We have sharding in this data availability layer and we're scaling with roll-ups. Does ETH2 phase 2 get a lot more simple? Right. So in the extreme version of the roadmap, you just don't need ETH2, phase 2 at all. You just say phase 1 and then the merge and then, you know, for the base chain, that's the end of history. Like you can do some incremental upgrades, like upgrade to Casper CBC, maybe do some zero knowledge proof stuff, but you don't need to fundamentally change it again. That's the extreme version of the roadmap. The somewhat less extreme version says, you know, well, maybe things are going to be safer and more convenient.

Starting point is 01:38:04 if base chain gas prices are still somewhat more affordable. And if that's true, then maybe instead of one execution chart, maybe we can have like four or eight execution charts. So it's still theoretically possible for one user to run all the execution charts if they have to, but it's a little bit harder. So that is an intermediate path that we could potentially take. Another intermediate path that we could take is having phase two come much later when we have the ability to just use Zika Snarks to zero-knowledge-proof the EVM,

Starting point is 01:38:36 at which points we actually will be able to just do a kind of base chain execution without relying on any fraud-proof assumptions. So there's different versions of Phase 2 that become possible, and we don't have to commit to any specific one of them quite sometime. So we preserve the optionality, right? But the nice thing about this is, like, the haziest part of the ETH-2 roadmap, and, you know, like, kind of design is, ETH2 phase 2, really.

Starting point is 01:39:03 So if you kind of don't need that in order to scale with roll-ups, then scalability on Ethereum happens a whole lot faster. Yes, exactly. ETH2 phase 2 is definitely not necessary for users to get scalability. I mean, that's never been true. I think it's the fact that you could do of sharding plus roll-ups to get really high scalability has been true as a property of the roadmap for a long time. but I guess it's only been in the last couple of weeks

Starting point is 01:39:31 and people have properly realized that it's true. Vitalik, I want to turn the conversation to EIP-1559. And for EIP-1559, like its utility or its beauty, it's kind of in the eye of the beholder. You know, for some people, it changes the monetary policy of Ethereum and that's its greatest feature. For others, it makes transacting on Ethereum much more easy. It's just a better experience because users don't have to worry about gas.

Starting point is 01:39:57 There's also the conversation of minor, extractable value and how EIP 1559 can help mitigate the instability that minor extractable value can cause. So when you think of EIP 1559, what do you see? Almost the way I see all of those things. Like, EAP 1559 was definitely originally created as a fee market improvement proposal that basically said, well, instead of having this really horrible few market that we have today, where users have to send transactions either with really high fees or they have to wait a random and unknowable amount of time for no reason. We'll have this market where we have kind of lost volatility on the fee side and admit

Starting point is 01:40:38 a little bit more volatility on the block size side. And this ends up kind of just being much safer for the network. So that was one motivation. And at the same time, you know, I wrote this big long paper where I talked. about these out of different benefits. Another one is getting rid of the inefficiencies of a first price auction. And then the list kind of goes longer and longer. Another one is getting rid of some safety issues of a of a fee dominant blockchain. So there's a lot of problems that fee market reform ends up solving. And then the other side of all this, of course, is, you know, the burn. And the burn is, of course, this thing that

Starting point is 01:41:24 a lot more people end up focusing on, right? And there definitely is this kind of dynamic where you have some people that are interested in fee market reform for the more technocratic reasons, some people that are interested in fee market reform for the more kind of quote populist reasons. And then there's people who see the value of both, which is a camp that I would definitely put myself in. And like, I think that is probably, the big one of the bigger reasons why it's so powerful right like it does just somehow kind of hit the jackpot in terms of having this fairly large set of benefits for ethereum all at the same time one of the things i really like about eip-559 is how it well in my opinion it adds to the

Starting point is 01:42:15 credible neutrality of ether the asset right and especially its relationship to ethereum as the way that ethereum comes to be validated in proof of stake we were talking about earlier about, you know, ether distribution and kind of the question of who should get ether issuance in the, in how Ethereum becomes validated, right? And, you know, while we just decided that, you know, it's kind of unfortunate that proof of stake is not a distribution mechanism, but that also comes with the benefit of, you know, proof of stake being really, really secure. And instead of ether being a distribution mechanism, I think EIP-159 reduced, you the political nature of ether issuance by socializing ether burn.

Starting point is 01:43:00 Because instead of having the transaction fees sent to the stakers who could be a quote-unquote privileged party, those transaction fees are sent to all ether holders everywhere. Do you see this as a depoliticizing or credible neutrality boosting force for the monetary policy of ether? Yeah. So I think one important thing about the EAP 1559, and particularly the fee-boring property, is that it just establishes the centrality of Ether within the Ethereum economic ecosystem. So what I mean by this is that if you don't have this,

Starting point is 01:43:41 then in some ways, Ether becomes kind of the most anti-privileged asset on the network. And what I mean by this is that, like, ultimately, you know, you can do things with ETH or you can do things with other assets, and especially if we have roll-ups, then you could even imagine a roll-up where the sequencer pays transaction fees with EF, but then all the users pay their fees to the sequencer in like Dyer or whatever else, and eventually the roll-up sequencer could just have private agreements with mining pools, and they could just use PayPal or avoid ETH entirely. And so the problem that you get is that EF doesn't really kind of have special privileges

Starting point is 01:44:21 in the Ethereum network, but it does have a special burden. And the special burden is that it's ETH and only EF that has to suffer the expense of more of it being printed in order to secure the Yen network, right? And the transaction fee burn basically fixes this problem because EF does have this unique burn, but it also has the unique benefit that it is this asset that is ultimately indispensable if you want to pay fees

Starting point is 01:44:49 on the, or get transactions included on the Ethereum network. Even if a user ends up paying and die, there's like some intermediary that's going to have to get some eth and actually burn the eth in order to get the transaction included. And so that actually does, I think, I kind of bring the economics of the Ethereum ecosystem somewhat more imbalance. And the last variable that's related here is minor extractable value.

Starting point is 01:45:17 And minor extractable value is in a summary, the value that a minor or also a validator can extract as their privileged role of being able to order transactions, right? And also being able to insert their transactions in that order as they see fit, that allows them to extract value. And a way to kind of quantify minor extractable value is to look at the fees being paid to Ethereum in any particular block. And during the skilled farming mania, we saw, you know, ether blocks having, you know, you know, three, four, five, eight ether as reward for fees. On top of, you got 12. Oh, yeah, 12.

Starting point is 01:45:56 That's crazy. On top of just the two ether that's issued every single block. Now, with EIP-1559, it's an elegant solution because a lot of that fee, a lot of those fees would just get burned. And that's the credible neutrality that we were talking about. But the combination of minor extractable value in EIP-1559 means that we're going to be burning a lot of ETH proportionally. Does this change the relationship between Ether and Ethereum in any meaningful way? As I think I just kind of mentioned, it does kind of reinforce the

Starting point is 01:46:32 centrality of ETH, just because there just is a lot of ETH that's going to have to really properly go out of circulation every time one of these transaction fee spikes ends up happening. In terms of minor extractable value. I mean, I think one of the challenges is that there's different kinds of minor extractable value. Like, fees are obviously one kind of MEPI, and that's important. And with the EAPU in 559,

Starting point is 01:46:59 the fees are going to be largely captured by the protocol. Another kind of MEP fee, though, is like arbitrage, right? Like, if you have the kind of right of first refusal to push transaction to a block, then if the price of like any token moves, you can be the first

Starting point is 01:47:15 to claim all of the uniswap arbitrage. Rajah, for example, right? And that's another privilege that miners have. And it's a privilege that currently miners are not very good at claiming. But in a roll-up-centric roadmap, that privilege is going to be largely claimed by basically roll-up sequencers and roll-up projects themselves, which is actually a really interesting equilibrium. I mean, I actually like this because it basically means that, you know, not all the value is going to get captured to pay for security. There's some value that could potentially be captured and directed to pay for other public goods.

Starting point is 01:47:45 I definitely can encourage you to talk to Jing from the optimism team at some point in terms of some of her thoughts on using a minor extractable value to pay for other kinds of just Ethereum level and potentially even wider of public goods. So there's a lot there that can be explored as well. But yeah, and I think the Ethereum ecosystem is, going to get better and better at sort of plugging the loop and basically ensuring that any opportunity to capture value becomes directly linked to opportunities to deploy that value productively for the good of the whole ecosystem.

Starting point is 01:48:31 We do have a podcast with Carl and Jingleon from optimism slated sometime into the future, so that absolutely will be discussed. Yay. So Vitalik, let's talk about this kind of, I guess, last piece of Ethereum 2.0. we've spent the entire of the conversation kind of going through all of the pieces and the values and the decisions as to why. And I guess ignoring ETH II, phase two, right? There is this notion with kind of roll-ups that we brought up where if we get to Ethereum to phase, you know, 1.5, where we're actually merging ETH1 and ETH2 together, that gets us a lot of what we need

Starting point is 01:49:13 for scalability. So I want to talk about that. And like one thing that strikes me is, you know, the whole concept of ETH II as sort of a separate network is almost a misnomer, or at least it's temporary. I think you've called like ETH two previous to all of this, previous before it got memed into ETH II, Serenity as sort of the next launch. And that's when we really start to see that this is, this has always been one cohesive roadmap when ETH one and ETH two phase together.

Starting point is 01:49:43 So ignoring like ETH2 phase two, how will the transition work when we merge these chains together? So just kind of repeating the roadmap, right? So first we have phase zero, which is coming very soon when the proof of stakes part is going to start. Then phase one, where the new proof of stake beacon chain gets extended with data shards. Then we have the merge. And this is the critical part, right? What happens in the merge is basically that we take the existing Ethereum state. So the accounts balance of smart contracts, code, smart contract storage, all that stuff. And we kind of just cut and paste it from the Eth 1 system into the ETH2 system. And then from then on, if you have an Ethereum client, it will stop looking at the ETH1 chain and it will start looking at the ETH2 chain. So the place where you would need

Starting point is 01:50:33 to put transactions if you want to interact with those applications after that point on, will be in the ETH2 chain. And it will be the ETH2 chain that processes the transactions that kind of executes the state transitions and that does all of those things, right? So, like, basically kind of the core engine, well, I shouldn't say the engine. The engine is more like the proof of work and the proof stake. The core kind of thing that is being maintained is going to be sort of transplanted from the ETH1 system directly into the E2 system. It's the engine that will, like before was a proof of work, but after the transplant, it will be

Starting point is 01:51:11 living as a part of the proof of stake system that will have been already running for over a year by that time. So if you're a user, you don't really need to worry too much. The transition will happen largely automatically. You don't need to do anything special to, you know, move your coins over or move your contract's over. Everything just moves over by default. And then if you're a client developer, then, you know, the transition is, you can think of it as just being like a special type of hard fork, basically. And at that point, the ETH1 chain will effectively be no longer useful. It will die.

Starting point is 01:51:45 Correct. What EIP features do we need an ETH one before it freezes? EIP 1559? Is there anything else? I mean, theoretically, the roadmap would work if we change nothing about ETH1 between now and the merge. But there are things that would be good to include, right? So EIP 1559, I'm certainly, and ETH2 has its own kind of built-in form of EIP 151550. But then the ETH2 version focuses on bytes because ETH2 is just a data environment. But we wanted to have it for gas as well.

Starting point is 01:52:21 And another nice thing to have would be stateless execution. So the ability to execute blocks without having the full state. And this is something that ETH1 is solely moving towards. Like there's an EIP to change to a binary tree. there is an EIP to increase the gas cost of some operations that have a really heavy witness cost and so on and so forth. So there's definitely things that would be really nice to get included in ETH1 before then, and then obviously just generally efficiency improvements.

Starting point is 01:52:57 But like really a lot of things and even the important things like theoretically it could happen before or after the switch. Fatalek, we want to thank you for giving us your time. this has been a very insightful, very helpful podcast to go through why we are doing what we are doing here in the Ethereum world. And we want to finish up with a roll-up round if you are game. Mm-hmm. All right. So first, first roll-up question.

Starting point is 01:53:20 Phase zero, 2020 or 2020 or 2021? I think 2020. Next question. ZK roll-ups or optimistic roll-ups? Who do you love more? Mm. Short-term optimistic, long-term, I expect that kind of ZK to inch into a better and better position over time as EZK roll-ups become better at doing more general-purpose things.

Starting point is 01:53:41 Battalek, what does Moloch mean to you? Moloch is the rationalist god of coordination failure. It's kind of the representation of all that is wrong with the world that can possibly not be wrong if we could just learn to find ways to cooperate better. And sallying Moloch is one of the major things that I think the theory of ecosystem can be about. China versus the United States in the current digital currency race, who wins? I mean, I guess China definitely seems kind of more on top of the game in terms of just getting DCEP out there.

Starting point is 01:54:20 I think, I mean, in the long term, and I don't think the interesting question is like government A versus government B so much as it is like, you know, the category of kind of governments doing their CBDCs in that. particular way versus an alternative approaches. Like, first question, you know, is DCP even going to succeed at, like, beating out existing kind of centralized fiats like Weechad pay, which is already very convenient. And then a second question is, like, in other places, you know, what advantages our CBDC is going to end up having relative to other forms of digital payments? And then finally, are they going to be the primary way that people end up? actually doing international commerce or do a fully decentralized their currency as stand

Starting point is 01:55:10 a chance of kind of capturing a lot of market share there, either directly or as a kind of glue layer between these nationalist systems. I think seeing just where the equilibrium lands there, just like in terms of, you know, the category of kind of nation states doing things directly versus nation and states kind of interacting with the commercial banking sector versus just crypto as a separate glue layer or potentially nation states coming up with CBDC is that interact with the crypto layer more closely of that and I don't know we'll see you. There is at the time of recording 142,000 BTC tokenized in various different ways on the Ethereum network.

Starting point is 01:55:57 How would you describe the long-term relationship between Bitcoin and the Bitcoin and Ethereum. I definitely expect Raps Bitcoin on the Ethereum side to grow over time. My main concern that I've raised multiple times and they keep raising is the trust model. A lot of these wrapped BDCs, so they kind of hide what their trust model is, or they'll talk about it openly, or they talk about what their trust model is going to be in five years, but not what it is today. And they're often end up being fairly centralized in practice, and this really worries me. I want to see more decentralized wrapper tokens that have, at the very least, a multi-sig trust model and then see if we can do even better than that. Does TBTC from the Key Project fit into that category?

Starting point is 01:56:41 It's definitely one of the more interesting trust models, though, I mean, one challenge is that the kind of collateral costs of having ETH be the other back to the BTC are significant. And so it will be forced to charge some kind of interest charge, I think, on the, on, on deposits at some point, which the more centralized ones are likely not going to be able to, or not going to have to do, but I don't know, we'll see it. Vitalik, say phase zero ships in 2020 as you predict. Do you think that regular people, regular ETH holders should start staking at the ETH2 launch, or should they wait some time?

Starting point is 01:57:21 I think if you're an intrepid enthusiast, you should stake at the beginning. If not, then you should wait some time, and I think that's okay. We actually wants to have a relatively smaller number of people sticking at the beginning and I've increased that over time as people get more comfortable. Vitalik, it has been a pleasure to have you on bank lists. Thanks so much for sharing your thoughts on why ETH2 and the value set that drives this very important project in the crypto ecosystem. Thank you. This has been great. All right, guys, action items.

Starting point is 01:57:52 Vitalik included a bunch of articles that he referenced in this conversation. we will include those articles including Slasher, a punitive proof of stake algorithm and his philosophy in the show notes. So you can click on those and read up on that material. Also, we've included Vitalik's Post on ETH Research on the roll-up-centric roadmap. That is fantastic reading if you're trying to get familiar with how the ETH2 roadmap is shaping up. Lastly, we have a guide on ETH2 staking. We're going to be putting more guides on ETH-2 staking as it becomes available.

Starting point is 01:58:27 I think we're close now. So we've included a link to that guide and you can check it out there. Risks and disclaimers. Of course, crypto is risky. So is ETH. This is not financial advice. Defi is risky. You could lose what you put in.

Starting point is 01:58:41 So be careful out there. But we are headed west. This is the frontier. It's not for everyone. But thanks for joining us.

Bankless - 35 - Designing Ethereum | Vitalik Buterin

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