Bankless - 64 - Legitimacy | 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. I'm Ryan Sean Adams. I'm joined by David Hoffman, and we're here to help you become more bankless. David, Vitalik on the podcast, again, another cannot miss episode. What did we talk about? We talked about legitimacy, this invisible force that Vitalik has named as, legitimacy that we are exploring in today's podcast. And we go through the ways that the concept of legitimacy impacts our lives, our lives as individuals and our lives as part of a greater society. And Vitalik makes the claim that legitimacy is one of the world's most powerful forces.

Starting point is 00:01:01 And as a society, we don't really talk about it. But it really guides a lot of our day-to-day lives. And it's even more true in the cryptocurrency space. And I think the fact that legitimacy is one of the most powerful forces in the cryptocurrency space is perhaps why this space is so revolutionary. It answers the questions as to why this industry is so bottom up, why this industry is by the people for the people, because the people are enabled to bestow legitimacy on the things that they see are good. And so we talk about a number of different subjects,

Starting point is 00:01:37 both in and outside of the world of cryptocurrency, where legitimacy really has. the reins as to what is true and how the world moves forward. And so really enjoy this conversation with Vitalik Boutrin as always. Yeah, I guess, you know, I'd say a couple of things that's really impressed upon me with this episode. I feel like if you don't understand the concept of legitimacy, even if you don't call it legitimacy, you don't really understand what's going on in crypto. Because legitimacy is really the answer to so many of the questions, like even basic questions. David, why is cryptocurrency trading over $2 trillion? Right? We're in a great. We're in a great,

Starting point is 00:02:12 road like, you know, 11 to 12 years ago is when it started. How did we come this far? The answer? Legitimacy. Why are NFTs valuable? Why was a BEPL NFT? Why did that sell for $68 million? Answer, legitimacy. How come when I, like, try to fork a Bitcoin, how come you can't fork your own Bitcoin, create your own alternative? How come I can't do it? How come there is only one Bitcoin? Answer, legitimacy. Why do we have confidence that Ethereum's monetary policy won't change in the direction of increasing inflation, but only will change in the direction of decreasing inflation. Answer, legitimacy. It's kind of the answer. It's almost like the theory of everything for crypto. And until you understand it, I don't know that you have comprehensive

Starting point is 00:03:00 answers to all of these most common questions. Vitalik said it's legitimacy all the way down. I think he's right. Yeah. And we can even go all the way back into history, modern history, and talk about the current situation going on in Russia with Alexei Navalny, but we can go all the way back to just very historical, primal examples of how humans choose to coordinate and how legitimacy is like this emergent, higher order of acceptance of society, and how when everyone chooses the same outcome, that outcome is bestowed with legitimacy. And we can kind of build our social organizations upon that initial kernel of legitimacy and that initial kernel of legitimacy carries on forwards into the future and gains legitimacy every step of the way. So while it is extremely apt

Starting point is 00:03:47 for the world of crypto, it also helps answer so many of the other questions that I think are really confusing to people today in modern society. Like, why is the left and the right in America have so much strife between them? Why do we distrust institutions? The legitimacy has a hand in answering, I think, every modern day social question. Yeah. So Vitalik is like, again, part part technical mind, part philosopher, part anthropologist, just has a fantastic lens on legitimacy. So he was the perfect guest to explain it. And he wrote a fantastic post that we based this episode on. So that is the bulk of the conversation. You're not going to want to miss it. We also, toward the end, we talked about Vitalik's thoughts on ultrasound money, on ether issuance.

Starting point is 00:04:32 I thought that was definitely stay tuned for that. That was a very interesting part of the conversation. and we ended in him giving us a snapshot of time. Ethereum in 2021, what is in store for it as a network, will it become a global store of value reserve asset? He even reflected on that too. So this is an episode you do not want to miss. David and I are giving some more, have some more conversation about this episode in the debrief.

Starting point is 00:05:00 So if you are a premium subscriber, you should already have access to that at shows. bankless hq.com. So with that, we want to thank the sponsors that made this episode possible. Metamask is your go-to wallet for the bankless journey. If you're going bankless, you need Metamask, period. Browser and mobile, get them both. This is your tool to unlock the world of Defi. Here's my favorite part. Now you can swap tokens directly in Metamask with a single swipe. This has got to be the easiest way to trade Ethereum tokens. Choose a token. you own, a token to exchange it with, get your quotes. If you like what you see, you hit swap.

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Starting point is 00:07:41 And Vitalik, you recently wrote a piece titled, The Most Important Scarce Resource is Legitimacy. And we are going to be talking a lot about legitimacy today on this episode. Vitalik, welcome back to Bankless. How are you doing today, sir? Thank you. I'm doing great. And it's good to be back on Bankless,

Starting point is 00:07:59 to the greatest Ethereum podcast at TM. Wow, wow, you heard it here, folks. It was a TM. I want to know who has the TM, though. Hopefully that is settled on Ethereum and not in the nation state, right? That's what we do on bank list. Vitalik, you started off your blog post illustrating this massive difference between Ethereum and Bitcoin security budgets

Starting point is 00:08:23 versus how much each of these respective systems allocates towards research and development expenses. You said Bitcoin is paying miners $38 million in block rewards plus $5 million more in fees per day. And Ethereum is doing $19.5 million in block rewards plus $18 million in transaction fees per day, all going to security, which is a necessary expense. But you juxtapose this with how much the Ethereum Foundation has to spend on research and development, which is just $30 million per year. And you do a similar compare and contrast versus the Bitcoin innovation expenditures as well, which is similarly very, very low versus the security budget for the Bitcoin blockchain. But you didn't do this to suggest that Ethereum and

Starting point is 00:09:07 Bitcoin should find ways to direct some of their security budget to pay for human salaries for research and development, but rather as a thought experiment as to why this crazy discrepancy and funding exists and why we are okay with massively overpaying for security. So two paragraphs that I want to read out that are in the blog post. for the listeners that haven't actually read the piece, you wrote, even though we could easily identify some valuable public goods to redirect some funding to as a one-off, making a regular institutionalized pattern of such decisions carries risks of political chaos and capture that are in the long run, not with it. We are faced with this

Starting point is 00:09:45 interesting fact that the organisms that are Bitcoin and Ethereum ecosystems are capable of summoning up billions of dollars of capital, but have strange and hard to understand restrictions on where that capital can go. And it's a social force that underlies all sorts of extremely powerful mechanisms far beyond the blockchain space. For this reason, that will be clear in the upcoming sections of the article, I will give this powerful social force a name, legitimacy. The powerful social force that is creating this effect is worth understanding. And so Vitalik, we would love to explore the power and value of legitimacy with you today. So let's start with this very basic question. What is legitimacy?

Starting point is 00:10:29 So the thought experiment that I just started the post with, right? It's basically a kind of calling attention to this strange fact that ecosystems and like groups of humans more generally, they have a kind of physical ability to summon up resources. Like each of us has the physical ability to summon up a certain number of hours of effort, every person. week. We have a certain amount of physical resources at hand and so forth. But then there also seems to be this different thing, this kind of social ability to actually sum it up in direct resources toward particular tasks. And our ability to socially direct resources toward particular tasks is often kind of wildly out of sync with the physical ability to direct resources that's in the hands

Starting point is 00:11:19 of each individual person. Right. And so in this example, like we clearly have the physical ability to summon up resources worth billions of dollars potentially to any task. But we socially seem to have the ability to put those resources toward network security, but we don't have the same ability to put those resources toward other things. And like funding protocol research and development is one big example. Right. And so you start thinking about why this is the case, And we also start thinking about, well, why is it the case that we have these kind of socially mediated resources in a lot of other contexts more broadly? Right. So like a bit after this, I brought up this case of the Steam project and how Justin Son bought up a bunch of esteem tokens.

Starting point is 00:12:12 And he started using them to try to kind of consolidate power and sort of do an authoritarian takeover of the Steam network. but then the community just said, like, you know, no, screw you. We're going to make our own fork and we're going to delete your money in the fork, right? And the fact that this was possible is basically proof that, well, actually Justin's son, regardless of what any ledger theoretically said, never actually owns those coins, right? Like, if you own something, you have the ability to use it for whatever you want. Well, he clearly, as demonstrated by reality, did not have the ability to use those coins for whatever he wanted. I see his ownership of the coins was actually kind of controlled by these unwritten social contracts that the steam company had with the community that he then inherited when he bought steam the company. And so we have these situations where basically large collections of resources are controlled not by physical force, not even by private keys and not by any kind of formal arrangements of individuals, but by a social.

Starting point is 00:13:17 contract, right? And so, like, this is what happens in the hands with, say, a blockchain, right? Like, the Ethereum blockchain, for example, like, it's clearly capable of making the decision to switch from pumping $5 million a year into proof of work to pump, or $5 million a year into proof of work to pumping $1 million a year into proof of stake. But it would not be capable of switching to pumping $1 million a year into, say, life extension research, even though, like, I personally, I really love life extension research and lots of other people love life extension research. So, like, we need to just, like, properly think about and understand this concept. Like, what does it mean for coins to be owned by social contracts?

Starting point is 00:14:02 Like, what is actually happening in this phenomenon? How do we describe this phenomenon? And if we understand this phenomenon better, like, it's clearly this very powerful social force that, you know, we could potentially even try to like apply and try to use it to fund more at all kinds of good things that we that we like. So then I get to this concept of legitimacy, right? And so the idea behind legitimacy is basically that like in society in general, there's a lot of cases where there's some action or there's some pattern of behavior. And there's this shared except, expectation that some pattern of behavior is something that's supposed to happen. And everyone

Starting point is 00:14:49 plays their part in enacting the facts that this is a pattern of behavior that's supposed to happen because, like, at least in big part because they expect everyone else to share that pattern as well. Right. So like the simplest example of this is like which side of the road do you drive on, right? And, uh, you can, for most people, listening to this. It's, you know, you'd be on the right side of the road, but no, in some places, it's on the left side of the road. And, like, there isn't really any, like, coherent reason why one is better than the other, but... There's no right side of the road, Maxwell, yeah, I guess, I don't know, maybe there are a few, but, like, yeah, to be honest, like,

Starting point is 00:15:36 I'm not really a car person, so I said, yeah, like, yeah, I had to think for a couple of seconds to remember, like which side of the road is which. But the point is that like even if tomorrow the police completely disappeared you know, there are some things that would start going wrong but like I would predict that almost all people like say in the United States would just peacefully keep driving

Starting point is 00:16:03 on the correct side of the road and not driving on the incorrect side of the road because they know that you know if they start driving on the incorrect side of the road Like, that's just going against the consensus is the thing that's, like, is the thing that's bad both for society and for themselves. Like, and like, there's just this high cost of disrupting the consensus. And it's a high cost both to both, both to kind of the wider society and just a high risk to themselves personally. And so they just continue driving on the correct side of the road. And by doing that, they just sort of become part of the process of enacting this consensus. And this is something that exists in a lot of social situations, right?

Starting point is 00:16:43 So like one example of this closer to home in the blockchain space is like if you look at something like the Dow fork, right? Like there's the question of, you know, is was the Dow fork legitimate, right? And if you think that the Dow fork is legitimate, then what when the Dow fork is happening, then you're going to, you know, go and peacefully download the Ethereum client that implements the Dow fork. and if you run some Ethereum service, you're going to hook up that client or your Ethereum service to the client that implements the Dowfork. When you talk about ETH,

Starting point is 00:17:18 you're going to talk about ETH as being the coins that are on the DAF fork. But if you do not recognize the DAFORC as being legitimate, then you're going to do the opposite and you're just going to keep running the client that does not implement the DAFork, right? And so this is also one of those situations where, like, you have a,

Starting point is 00:17:36 there are reasons to want to favor one side or the other, but there also is this kind of strong overriding pressure to sort of favor the side that is brought, like everyone else broadly accepts and like this, this pattern of kind of everyone watching what everyone else's expectations are and forming their own expectations based on that. And like this kind of pattern, right, of like everyone watching everyone else and this.

Starting point is 00:18:06 being motivated even in part because like there is even an over like this big self self interest in going along with the consensus like this pattern is the thing that I call legitimacy right and so like in 2016 like we found you know the Dow fork is like what was legitimate and in 2017 the Bitcoin segweight for example was legitimate and like I'm using the word legitimate in this very kind of positive sense, right? This is positive as opposed to normative. Like something could be legitimate even if you don't like it, right? Like, you know, the government of North Korea is legitimate inside of North Korea because there's a pattern of acting like it is. So, but like this is the kind of like the social force that we're talking about, right? Like it's, you know, basically which side of,

Starting point is 00:18:58 you know, the equilibrium could fall either way. And the question is like, which side does it fall on? And And that ends up just like deciding a huge number of things in the world. Guys, when I read this post, it was sort of a missing link for me because I think legitimacy is a hidden force, to use another popular podcaster's vernacular, behind so much of what happens in crypto. And it answers so many of crypto's frequently asked questions. And that's why it is so important to understand what it is and to get your mind wrapped around this as a mental model. I think one thing you're saying, Vitalik, is basically in 2016, with the Dow Hard Fork, there was a fight for legitimacy of which is the real Ethereum, quote, unquote.

Starting point is 00:19:54 And it seems to be the case that the real Ethereum is the Ethereum that did hard fork as a result of maybe the market cap of Ethereum, the Defy economy that's built on top of it, the community that the Ethereum economy has versus the Ethereum Classic Fork. So that was really a, I guess, a battle, a social coordination game for legitimacy. That's how you'd frame it. Absolutely. Vatelik, just to recap and define a few things that you said leading up to this, is you talked about the Steam blockchain versus Justin Sun and the Dow Fork. And I want to just make sure that this concept of legitimacy is formally instantiated in the listener's brain, where you're saying that Justin Sun didn't actually own the Steam tokens that controlled over the Steam blockchain, even though he had the private keys that controlled over the address that held this tokens, because there was this invisible force, this hidden force that exists out there in the world,

Starting point is 00:20:58 that force was allowed to influence the control over the system. And the force of legitimacy actually put the power of ownership over the steam ecosystem into the hands of the community and away from Justin's son. And now that this event happened, we can retroactively look at what happened and say, that, well, Justin's son had the tokens, but they were removed from him by this invisible power that is legitimacy. And so while we can't feel it, while it doesn't exist anywhere, it's not tangible, there is this hidden social force out there, kind of like the dark matter of the universe, this hidden force of legitimacy that is directing our lives both in, like, both in the meat space

Starting point is 00:21:39 and in the crypto space and perhaps especially in the crypto space. Anything you want to add on to that. No, I think that's definitely an excellent summary. And I think like these kinds of hidden forces are definitely everywhere. And they're extremely strong in the crypto space, I think, because the crypto space is like really all about just kind of trying to summon up value entirely out of a conception of legitimacy in a lot of ways, right? Like the crypto space controls no physical resources. The crypto space controls no legal. rights to crypto space controls, no guns and boats. So like, you know, what gives Bitcoin the value, what that it has, what gives each the value that it has, like legitimacy is pretty much entirely

Starting point is 00:22:29 responsible for these things. It's very much a battle for hearts and minds. It's a battle on the layer zero, sort of the social layer, as we've said before. I want to prompt back to the original story that David opened with just to see if we can tie that on a bow and maybe answer the question of why legitimacy was such a factor there. And then we can define legitimacy a bit more in other contexts. But the reason that Ethereum couldn't just siphon off issuance and put it into a development fund was because we don't, like, there's no legitimacy in the governance of that development fund.

Starting point is 00:23:08 So if you propose an EIP, for instance, to create Ethereum issuance to fund charity of your choice, that would be an illegitimate use of the Ethereum social contract. I remember, just a quick story, back in 2019, this was actually sort of a real thing that was contemplated. We were in the depths of the bare market, Ethereum. There was kind of the question of, is Ethereum dead? Price was down. The community was discouraged. Even though we were building so much during that time, it was sort of a discouraging time for many being in the space. and an EIP was proposed to answer the question that you posited at the beginning of your article, which is how do we make sure that Ethereum client development at the protocol level is funded into the future?

Starting point is 00:23:56 And so EIP 2025 was proposed, and the title of this EIP was Block Rewards proposal for funding ETH1.X. And what it actually did was it proposed funding to a good cause, which is the future development of a, Ethereum and Ethereum clients in the Ethereum Protocol. And there were a number of great people behind this. Kevin O'Waqui was one who created a fantastic distribution mechanism, public goods funding mechanism in Gitcoin. But the difference is this is embedding some sort of issuance to some third party, unnamed third party on the base layer, which is a question of legitimacy.

Starting point is 00:24:37 And at the time, I felt like Ethereum needed a bit of a wake-up. call, a bit more of kind of a Bitcoin or mindset of what could happen if we are naive about the issue of legitimacy. I didn't call it then. And I created EIP 22808 as just kind of a joke. I'm not sure it landed among everyone, but this was sort of a riff off of the other proposal. And I basically proposed an EIP to report to award block rewards to thought leaders, people in the media space, people with great Twitter accounts. I think some in the Ethereum community felt like I wasn't being maybe sanctimonious enough about the EIP process. It was a joke. But I surfaced the joke in order to... That was the point. That was the point, satire.

Starting point is 00:25:22 But I surfaced the joke in order to provoke this very conversation. If an EIP could be proposed to siphon off issuance for development, why couldn't it be proposed to siphon off issuance for anything? And then what's the governance process for that EIP getting passed? And it was very hard to justify the legitimacy of those things. Any thoughts or reflections on all of that? Yeah, I think you definitely gave a good summary. I would say one of the things that became obvious as a result of that is, and then here we can probably kind of go down a bit to what I talked about in the next section of the post is like where legitimacy comes from, right? Like what kinds of sources of legitimacy there are. And my point there is that, like,

Starting point is 00:26:13 legitimacy is something that can theoretically come from a lot of places, but it's really heavily dependent on human coordination and consensus. And so legitimacy can most easily come from, like, things that intuitively appeal across abroad groups of people. And so I gave a few examples, right? Like, one example of a legitimate, is just legitimacy by brute force, right? Like if someone takes over some community or exerts a really strong influence to some community, even if they're not liked, if they're feared by enough people, then people kind of get into this mode where, like, people realize that no one else is brave enough

Starting point is 00:26:55 to stand up against them. And so they, and so they themselves start being, not being brave enough to stand against them. And, like, this isn't a pattern of legitimacy that everyone likes, but, you know, know, it is still a pattern of legitimacy, right? Is an example of this the nation state, brute force fatale? Sure. Yes. Many nation states are definitely an example of this.

Starting point is 00:27:17 A second example is legitimacy by fairness, right? And, you know, this is a conception of legitimacy that I think, you know, we all consider to be much more pro-social, right? And so something is, like, gains legitimacy if it's perceived as like, satisfying some intuitive conception of, you know, being fair, of not unfairly favoring some groups of people over other groups of people. The concept of credible neutrality that I wrote about last year, like, kind of really ties into this, right? And I think this gets to the core of why, like, say, funding network security is much more easily accepted than funding development,

Starting point is 00:28:01 because network security is a very cleanly defined thing. And it's also a process that at least formally anyone can kind of come in and participate in on a kind of formally equal terms. And so it's something that people fairly easily accept as like, yes, this is something we all agree is necessary. And yes, this is something that we all agree is not a giveaway to a certain group of people. Right. And so we're okay with funding blockchains for network security. But once say you start funding developments, the problem is that I think EIPB 2025, it didn't just say we want to redirect 0.45 eith per block to developers. It said, we want to redirect 0.45 each per block or whatever the number was, maybe it was 044 to this specific group of people that we consider to be the ETH1.X team. Right. And so in order to be okay with that EIP, like you basically had to have to. have an opinion, not just about the cause, but also about that particular group of people. And so that's not a very socially scalable thing to I try to convince people of. And that's something that just does not benefit from legitimacy by fairness at all. Right. So now theoretically,

Starting point is 00:29:20 like if someone had proposed, like if Gipcoin grants quadratic funding had existed and someone had proposed Gickland Grants Quadratic funding as a recipient of that point 044, then like, maybe it would have been more successful. And like maybe one could imagine, you know, a world sometime down the future where the Ethereum ecosystem has a big enough funding crisis that people realize that, you know, public goods funding is something just needs to be expanded upon. And someone suggests, hey, you know, let's take like 20% of like, say the EAP 1559 burn and directed into Gipwin grants and like that actually gets accepted. Like that's something that I think the Ethereum ecosystem is far away from today. But, you know, if in the future, like there's just a large necessity for public goods on a larger scale than is possible was just people's existing

Starting point is 00:30:12 funds, like that's something that conceivably the community could move toward accepting. And it would have an easier time accepting that than it would accepting, you know, hey, let's give 0.045 each per block to like Alexei Akronov's team or to even to Justin Drake's team or to my or to some team led by myself or to brainwatch anything that's like organized around specific people. So that's like another example. But you know, at the same time like even still like the thing that has even more legitimacy is like instead of trying to change the layer one base, uh, change the base layer is to try to do these things at higher levels of the ecosystem, right?

Starting point is 00:30:53 because like status quo pressure itself is something that has higher legitimacy at layer one than it does at layer two. So that's like, so that's legitimacy by fairness. There's also legitimacy by process. So legitimacy by process basically says if a process is fair, then outputs of that process are fair. There's legitimacy by performance. So if a process had good results in the past, then that process becomes, something that gains legitimacy over time. There's legitimacy by participation.

Starting point is 00:31:28 So a mechanism where people feel like they can be part of enacting the process is a mechanism that people are likely to accept more easily. So there's all of these kind of complicated concepts that, like, affect people's perceptions of what is legitimate and what isn't, right? And like, they interact in complicated ways, right? And like the way that public goods funding has, happens within the Ethereum ecosystem and even beyond the Ethereum ecosystem is very heavily influenced by all of these things. So these are some of the sources of where legitimacy comes from. And I want to kind of quickly maybe recap some of these for folks. So you said legitimacy by brute force. We defined that.

Starting point is 00:32:13 Legitimacy by fairness. We talked about that a bit. The example of legitimacy by a process, something that many listeners are familiar with, of course, is probably a democracy. Right. So if I have the ability to vote on a new leader every four years. I'm probably less angry when the person I picked doesn't go through. And I'm less likely to revolt because, hey, this is just part of the process. I get to pick every four years, so does everyone else. And another four years, I'll get another shot at it. So I'm not going to lead the revolution and support candidate X as a result. That's an example of legitimacy by process, right?

Starting point is 00:32:51 Right. Now, so legitimacy by process goes from processes to outcomes. The one right after that is legitimacy by performance, which goes from outcomes to process, right? So I gave the example that democracy is an example of legitimacy of a process. Successful dictatorships sometimes are described as getting legitimacy by performance. Like, you know, this person ran the country for 30, or this group of people ran the country for 30 years. and like we've had six and a half percent economic growth for most of those years when the rest of the world was moving forward more slowly. And so like they gain legitimate, like, they gain

Starting point is 00:33:29 legitimacy as a process as a result of like them being able to like achieve this outcome. I can't. Now once again, I was going to say, I just can't help like weaving in some kind of crypto lessons here because I feel like there are many cryptocurrencies right now that get at least some short-term legitimacy by performance. So people observe this. Coin price goes up. Oh, it must mean that this is a good asset. It must mean that this chain is decentralized. It must mean that this chain is long-lasting. You know, chains like the finance chain, for example, they are having some success with defy, quote, unquote. Yeah. And so this is legitimacy by performance, essentially. Yep, that's absolutely true. And legitimacy by performance is,

Starting point is 00:34:14 definitely one of those interesting things because it's often how a kind of intellectual revolution happens. Like there's this sort of equilibrium of conformism among, you know, the right thinking people where the right thinking people have certain ideas that they think are legitimate. But then something outside of those ideas just starts performing and it keeps performing and it keeps performing. And the people within this kind of self-affirming circle of intellectuals just keep ignoring it for a long time, but then eventually, like, people that are kind of further away from the center, like, they just see, you know, hey, this thing on the outside is performing well. And, you know, we don't give a crap about these principles. Like, look, this thing is successful. And, like,

Starting point is 00:34:58 that often ends up overturning things, right? And that's something that some, like, once again, you know, I have to keep giving this disclaimer, right? Like, the legitimacy does not, something being legitimate does not mean that you like the thing, right? And sometimes the thing that you like loses legitimacy and a thing that you don't like gains legitimacy. One interesting thing that I think the U.S. might be experiencing over the last 10 years or so is actually it feels like the process of democracy is actually losing some legitimacy. So like one example of this, right, is that on the Democrat side, like we saw the whole not my president movement, you know, hashtag back in 2017.

Starting point is 00:35:42 And that's a very direct and literal example of basically just declaring, hey, I'm going to dip my toes into like basically saying, well, you know, too bad if he was elected by democratic process. Like I just think that this person is horrible and that and that just overrides the process. And then, of course, on the other side, you know, in 2021, we saw, you know, people denying the legitimacy of the election results, right? And so on both sides, like, if you want to try to kind of, like, analyze that from a social science perspective, you know, that's a process just, like, people are sort of dipping their toes into the idea of just not accepting the outcome of the

Starting point is 00:36:24 process and just acting like, well, if they don't like the results, they should just act like the result isn't a legitimate result. And you could, you, you can argue performance is like one of, one of the reasons behind that, right? So, like, this is an example of, of how transitions in legitimacy could happen. And, like, once again, you know, sometimes these are transitions happen in directions that you like. Sometimes these transitions happen in directions that you don't like, right? In the crypto space, another example of this is a proof of stake, right? Like, the legitimacy of proof of stake, like does a chain running on proof of stake sort of get the aura of being a first class decentralized system that you want to put your applications onto.

Starting point is 00:37:08 And that's something that I think is rising over time, right? Like maybe five years ago, the proof of work had much more legitimacy. But now as Ethereum's proof of stake is getting closer, as we see more and more chains running on proof of stake, like it's becoming just more and more accepted by this larger and larger community. And that's something that, you know, is definitely really really. disliked by this kind of self-affirming clique of intellectuals within the Bitcoin proof of work camp. And they just keep on shouting their arguments about, no, nothing at stake, no, costless simulation, no, rich get richer. And now, of course, you know, we have our intellectual

Starting point is 00:37:54 rebuttals to that. But, like, the, it's almost the fact that the intellectual rebuttals are now gaining steam is, I mean, like, in part, like, I wants to think that it's because my arguments are logically amazing, but, you know, as you said, it's not just because the arguments are logically amazing. It's also because of legitimacy by performance and this kind of hidden social force that's subconsciously influencing everyone. And Ethereum just looks like something that's strong and looks like something that's rising. And so that's something that, you know, people want to kind of rally behind, right? So let's talk about two more vitality. that you have these theories of legitimacy. As we said, we talked about continuity, fairness,

Starting point is 00:38:38 process, performance. You mentioned very briefly legitimacy by participation, but I think that's an important one in the context of crypto and has many aspects. So the fact that anyone can open an Ethereum address, right? All you need is an internet connection. That's something you don't get in the traditional banking system, for instance. So that is more participation. The fact that anyone in a more decentralized proof of stake network can spin up an Ethereum node, validator node, provided that you have the necessary stake to validate. It's much more permissionless. Democracies have legitimacy by not just process, but also participation in that every citizen

Starting point is 00:39:24 has the ability to vote. Talk a bit more about legitimacy by participation. Then we'll talk about the last one, which is legitimacy by continuity. and that'll give us a grounding for the rest of this. So what about participation? Sure. So legitimately by participation basically just means, you know, if the process just gives you and gives its participants

Starting point is 00:39:47 and ability to actually shape it be part of the outcome of the process, then this is something that people are likely to accept, right? And participation is not just fairness, right? like it's like part of it is fairness because systems that everyone can participate in are systems that are more likely to be fair but it's also a somewhat different psychological force right it's more like if you uh it's like a desire to have a force sort of psychological self-consistency like once you go to the ballot box and you make a vote like you feel invested in the process and like you feel like you feel like you feel like you feel like you feel like you feel like you feel like you feel like you. like, you know, you are a person who is part of doing implementing the democracy thing. And so this, you know, makes you want to also be a person who is part of implementing the democracy thing in other contexts, right? And, you know, in the case of the blockchain, your ability to run a note is definitely legitimacy by participation. And it's also other kinds of legitimacy as well,

Starting point is 00:40:53 right? It's also just kind of like intellectual legitimacy of just the idea that, that self-verification is important, and it's like a key part of what makes something a blockchain instead of making it a centralized system. There's some legitimacy by fairness in there as well. Gitcoin grants is also another example of legitimacy by participation. Like, you know, you yourself can affect which direction the matching plot goes if like you go and participate. it. So I guess, like, one example of this, right, is that, like, there are fair systems that you can't participate in, right? So, like, for example, if you're 16 years old, then you cannot yet vote. But even if you're 16, like, you might be, you might still be convinced by the

Starting point is 00:41:44 intellectual arguments that, you know, the average 16 year old is a lower quality political participant than the average adults. And so, like, they, you know, you know, you know, We can debate how true that is, but let's leave that aside. You might be convinced by this argument. And you might, like, and so, you know, you might still accept democracy being fair, despite the fact that only 18-year-olds can participate, but, you know, you're still not going to get the legitimacy by participation component. But, and so, like, this might be part of why, you know, there actually are all of these

Starting point is 00:42:19 like youth political movements and, like, school. and, you know, I often actively encourage, like, kind of teenagers to start, you know, doing civic engagement of some kind, right? Like, it's this alternative route to actually getting legitimacy by participation I kind of started earlier. So this is definitely something that happens a lot. And I definitely think that, like, decentralized systems heavily benefit from this because, like, there's no part of a decentralized system that is closed off to you, right? If you want to read the chain, you can read the chain. If you want to send the transaction, you can send the transaction. If you want to participate in consensus, you can go participate in consensus.

Starting point is 00:43:02 So, like, that aspect where, like, there is no part of the chain that, of the chain's activity that is not something that you can conceivably be part of is something that I think, like, it does really contribute to the legitimacy of public chains. And it's something that I think, like, is, is one. one reason why kind of like more fully decentralized systems like Ethereum and Bitcoin are likely to have more legitimacy than these like more semi-centralized chains that really that like intrinsically depend on delegated pools, right? Because like if you have one of these chains that that real that like relies on like mandatory delegated pools and there's only 21 validator slots,

Starting point is 00:43:43 well, you know, everyone knows that they have no chance in hell of becoming one of the 21. And so, you know, like the idea that like you are a. second class participant and like there is this one class of participant that's above you in a formal sense like that is going to weigh on you to some extent. Hey guys, I hope you're enjoying the conversation with Vitalik so far. Coming up next, we finish up going through Vitalik's identified sources of legitimacy, just a few left. We also talk about the role of legitimacy inside of NFTs as well as the power of charitable giving in adding legitimacy to the value of an NFT. And then we also turn to the conversation of legitimacy of the monetary policy of

Starting point is 00:44:25 ether the asset. And we ask Vitalik, will the most legitimate blockchain have the highest level of security? And overall, we can't miss the opportunity of talking to Vitalik about his thoughts on ultrasound money, but we do it inside the context of legitimacy. Stay tuned for the second half at this podcast. Don't go anywhere. But first, we have to talk about some of these fantastic sponsors that make this show possible. Bankless is proud to be supported by Uniswai. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum,

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Starting point is 00:47:31 So all of these theories of legitimacy we're talking about so much about we're making analogs to traditional institutions is because legitimacy underpins is the foundation for all traditional institutions. And of course, blockchains, public blockchains, cannot. like Ethereum cannot use legitimacy by brute force. Violence is just not an option. So legitimacy needs to come from all of these other sources that we've just named. The last one, and then we'll continue on with the conversation is legitimacy by continuity. And I think that's an important, applicable one in crypto. Maybe this has some relationship to what we have called previously the Lindy effect. So the idea that if something is legitimate at time T, by definition,

Starting point is 00:48:12 it is legitimate at time T plus one. the future. And perhaps even more legitimate at T plus one. Exactly. And so Bitcoiners will say yes, and the Bitcoin network has been humming for the last decade plus. And its monetary policy has not changed. It has continuity. And therefore, it is a good store of value. Can you reflect on legitimacy by continuity in time? Yeah. And I think legitimacy by continuity is important because it just is the reason why we can have these like social structures that last for like longer than a week at all, right? Like if we did not have legitimacy by continuity at all, then, you know, every political system would be up for like total revaluation, you know, every Tuesday. And if people thought in this way, then like, you know, it'll just be like hard to coordinate things that last longer than a week.

Starting point is 00:49:10 And that's like it's one of those things. that we think about the least because it's just something that like by definition happens by default, but it is important, right? And as you said, like the longer a system lasts, then, you know, the longer it does acquire this salindy value. And, you know, when newer people are coming in and they're trying to like see, you know, what is the system that I should get behind because it's the one that I expect other people to be getting behind. Like it's a, this long track record of survival is definitely one of the factors that they're taking into consideration. So Vitalik, the through line that I'm really seeing here with all these different forces that

Starting point is 00:49:52 legitimacy arise from is we call this a social force and it feels very much like a bottom up force, a populist force. People choose in these various different mechanisms what is legitimate versus what's not. But is legitimacy explicitly a bottom up phenomenon? In the article you wrote, in general, legitimacy arises because the thing that gains legitimacy is psychologically appealing to most people. Does that mean that legitimacy is a people-first force? Legitimacy definitely is something that comes from people first, but two caveats, right? Or, well, one caveat, basically, is that the thing that gains legitimacy can be something that's very centralized, right? Like, for example, you know, within the Tron ecosystem, you know,

Starting point is 00:50:38 Justin's son has a huge amount of legitimacy. Within, you know, the Bitcoin S-A-V ecosystem, Craig Wright has a lot of legitimacy. And of course, the centralized figure can, in a lot of cases, also gain legitimacy by brute force as well, right? So it is something that comes from the people, but the consequences that it has and the things that it empowers can be centralized in some way, a lot of the time. And so that is something that is worth watching out for. Right. And so even with a dictatorship where, you know, legitimacy comes from just raw unbridled power, which the people must be subservient to, even then, it's still kind of a bottom up force because the collective people identify that there's a lot of power there. And so they should be subservient to it. And even then,

Starting point is 00:51:33 we've seen instances throughout history where there is this top-down control, and then something happens that allows the people to question that control. And there's a collective shift where everyone realizes that perhaps they actually have the power to determine what's legitimate. And there is a populist uprising. Right. And so using these kind of mental models, let's talk about a stable equilibrium. How do we find stable equilibrium when it comes to legitimacy and all these other sources of legitimacy that we've gone through? again, I think like the equilibrium are stable most of the time, right? Like the shift in equilibrium

Starting point is 00:52:10 is one of those things that's like more catastrophist and gradualist to use an evolutionary analogy, right? It's the sort of thing that kind of is steady for a long time and then like sometimes you can see that when a shift begins, the shift starts off slow at times. And the shift starts slow and then when the shift gets to a certain critical point, it just happens quickly, right? And the reason why things work this way is because, like, just going back to a kind of my characterization of what the legitimacy phenomenon is, it's a pattern of people behaving in a certain way because they see everyone else behaving in that way. And, like, there is a big risk to stepping out of line alone that doesn't exist if everyone steps out of line at the same time, right? And so

Starting point is 00:52:57 if everyone considers some idea or something, some conception as being legitimate, and that's something that's very strong, then if you start kind of going against it, then you're not likely to have much of an effect, and you're even likely to, like, see, at best, waste time and at most, like, kind of hurt your own interests by going against it. But then the thing that you can do, right, is that you can sort of start, like, dipping your feet a little, and you can start, like, say, publicly questioning the concept slightly, but not actually going against it in your actions. And then once the first person who does that, they do incur some social cost, but then the second person who does that incurs a lower

Starting point is 00:53:39 social cost. And so legitimacy starts kind of slowly decreasing over time. And then eventually there does some come some critical points where people have done enough public questioning of the concept that it just, it can start flipping from like a, um, resistance to the old equilibrium being underground to resistance to the old equilibrium being like very open and very overgrounds fairly quickly. Right. So I think the more interesting way to frame the question is actually not even how do you identify conceptions of legitimacy being stable because that's the norm. The interesting thing to identify is like how do you identify when a big shift in the idea conception of all legitimacy is about to happen? And I think people have an intuitive feel

Starting point is 00:54:28 for these things, especially because in the last five years or so, in both crypto and in the world in general, like, we've had some of these shifts in legitimacy, and they, like, you know, you can feel at how these things sort of happen gradually and then they happen suddenly. And sometimes only when they happen suddenly, do you look back and do you realize that, like, hey, these things that people were saying in the two or three years before that actually were a prelude to that? I think a very relevant current event here is the Alexei Navalny case with Russia and Vladimir Putin right now, where Alexei Navalny was ostracized from Russia. He fled. He was poisoned by the Russian inner party. Then he comes back to Russia and was immediately jailed and is now perhaps on

Starting point is 00:55:17 like the last strings of his life in jail under Vladimir Putin. And what you just said recently was that the first person to question legitimacy probably loses a lot of social power and social force. But then what that person is doing is allows for the people to come after them to more easily question the legitimacy. And if this trajectory flows, Alexi Navalny, who is already a hero of the Russian people, and there's already this showing of solidarity behind this individual, I think a very apt current event to illustrate the power of legitimacy is going on right now. in Russia. And I think that it would be a useful mental model for listeners to really understand

Starting point is 00:55:59 how legitimacy is flowing in current times. Right. Yeah. It's definitely really interesting, although, of course, I know, very unfortunate for Alexei KM as well in a situation to be watching. It's the question to see is basically, you know, to what extent and or whether or not a serious equilibrium flip does actually happen, right? Like, equilibrium flips have happened before in Russia. You know, the whole switch from communism to post-communism was one of those big examples of an equilibrium flip. And, you know, like someone like my dad definitely remembers how it was out as it was happening. So that's like there's two ways that it could go, right? Like it could either kind of continue snowballing and eventually, you know, Big V either has to make serious concessions or he kind of actually ends up getting taken.

Starting point is 00:56:54 out of power somehow or, you know, the other possibility, of course, is that, like, it does just sort of fizzle over time. And the sort of equilibrium does a kind of reestablish itself. But even if the equilibrium reestablishes itself, like, I think it definitely would, it would be a shift from, like, legitimacy by performance, which is the thing that I think did sort of boy up Putin for the first, like, 10 years of his presidency to, like be just like clearer kind of just like brute legitimacy by brute force and that kind of like that kind of switch is something that like could can have like bad long-term consequences for him for him and uh you know his government as well and so yeah i mean we'll see how it goes and i definitely

Starting point is 00:57:45 you know wish the best for um the russian people as i'm russian myself but well We'll see how this goes. Another example that I think is kind of visceral that you give in the article is kind of the general in the army example or maybe a captain in the army. And I really enjoy listening to Dan Carlin's hardcore history. I don't know if you guys have ever listened to all of them. Okay, well, amazing. So he did this whole series called King of Kings and it was basically Persian Assyrian history. Anyway, there are many episodes in that.

Starting point is 00:58:23 like hours of listening. If you get bored of bankless guys, it's a little, you know, get bored of crypto, go to Dan Carlin. But he gives very visceral examples of what it was like to fight at the front lines of, you know, an ancient army, essentially.

Starting point is 00:58:40 And the captain or the commander's main job was social coordination. The captain had to make sure that his troops would not break rank because if the line broke, there would inevitably be a slaughter. And so the captain would have to have a show of confidence,

Starting point is 00:58:57 be decorated in bright armor, be sitting on a horse, and had to instill this confidence because every soldier, with the prospect of certain death and another army about to come kill them, very nervous at that time. What you're doing as a soldier is you're kind of looking around to your fellow soldiers and you're saying, oh, is he going to run?

Starting point is 00:59:19 Is he going to run? Right? So it's like this, it's like this real-time human coordination, social coordination game being played out at the highest stakes. That was a fascinating example of how I think some of these legitimacy mechanisms almost emerge in human behavior. Can you talk about that a little bit, like sort of the emergence? There's a line from your article that says with any coordination games that exist for long enough, there inevitably emerge some mechanisms. These are not necessarily defined. mechanisms and words or legal language, but these are mechanisms nonetheless that emerge. Can you talk about that a bit? Yeah, I think human behavior in general, and especially collective behavior, very easily falls into patterns. And it's just something that naturally happens over time, right? And you know, you can see why it happens. Like, it's easier for each individual person to just, like, repeat the same habits that they've grown accustomed to than it is for them to kind of like

Starting point is 01:00:16 flip their habits. And it's also easier to, again. It's also easier to, continue along a habit because getting an entire group of people to switch is something that's even harder. So, no, the ancient armies are definitely a great example. It's fascinating how, like, while two armies are fighting each other head to head, there's generally not too many casualties at least immediately. But then once one of the armies, like, does that equilibrium flip and it starts routing, like, that's when the carnage really begins, right?

Starting point is 01:00:46 And so, like, whether or not the equilibrium, flips is one of the most important things in a battle. And it's something that the captain has to try really hard to prevent. And that's one of those cases where, you know, yes, the soldiers are exactly, like they're watching each other. They're seeing, you know, who's going to, are these people going to run? Are these people not going to run? And, you know, if other people run, but then you start running five seconds later, like, guess what? You're at the back of the line and you're the first that's going to, like, you know, get a sword or an accident. back of your spine.

Starting point is 01:01:22 So, but if you start running and other people don't run, then, well, you know, you're, you're a deserter and you're likely to get your head chopped off by your own army at the end of the battle. So that's, you know, it's a perfect example. And it's, like, really tough to be in that kind of situation. And, like, yeah, the thing that everyone wants to do is just, like, see what everyone else is doing because, like, they just feel, like, acting the same way that everyone else. acts like just is the okay way to act. Vidalek, does this explain maximalism almost or sort of

Starting point is 01:01:57 an ardent maximism? David, as before, has called some ardent maximus, almost like barrier troops, right? That prevent your own army from fleeing. No, that's definitely a fascinating example. Definitely a big, like intellectual legitimacy in general is a really important type of legitimacy and just having people out there just like, you know, saying the raw Rosalokens and like talking about how they're going to fight till the end and how their belief in this that causes unconditional is definitely a way of like just showing of like the other people in the community that, you know, there is at least this group of people that, you know, is not going to flee before me. So it's safe. It's kind of safe for me to continue being part of this. And, you know,

Starting point is 01:02:47 continuing to shout this organ to myself. That absolutely is a thing that happens. Well, but some of it's logical, too. And I'll give an example for bankless listeners. We'll listen to a few podcasts a ago. We had on Haseu, who is a crypto researcher, also involved in the Ethereum community, someone who I consider an intellectual has some fantastic ideas. And toward the end of that episode, he said something that kind of blew my mind. He said that, you know, there are many, including himself, in the Bitcoin community, that know that the long-term security model of Bitcoin fixed cap is actually flawed. But then he also followed up by this.

Starting point is 01:03:24 He said he was reticent to proclaim that. It was flawed. And why is the reason? It's not anti-intellectualism. It's because actually acknowledging the problem hastens the demise of Bitcoin. Because so much of Bitcoin's economic monetary, policy and number go up is because of legitimacy of fixed issuance. So if you break rank and you actually talk about that, even bring it up, you could actually be contributing to the

Starting point is 01:03:57 de-legitimization of Bitcoin itself. And so it was almost a rational reason why he was renaissance to kind of bring it up. Yep, that's very true. Fidelik, we were talking about how humans just need to be on the same page in order to create this social force legitimacy. My mind turned to the concept of shelling points. Where do you see the intersection of shelling points and legitimacy? How do you see those concepts as related? I think legitimacy is a type of a shelling point phenomenon. Like there is definitely some level at which they're almost synonyms and they're definitely sort of like within the same category of idea space. So shelling points are no, just this idea that like if you want people to like basically people, like basically people,

Starting point is 01:04:43 if they have to coordinate with other people on something, like if they benefit from making the exact same choice as other people, then they would just like choose the course of action. They just they think it seems the most intuitive to the largest group of people. And like they latch on to just like any conception of intuitiveness that like seems like it's widely shared enough, regardless of, you know, whether or not like they person, agree with it or whether or not it's like logical in some other sense. So his Thomas Schelling's

Starting point is 01:05:21 original example is like if you tell someone that he wants to meet them in New York, but I know, you don't you don't know what location in New York, like what place should you go to? And the answer that he gave was a Grand Central Station. And I guess the theory is that like Grand Central Station is this, it's this big landmark in New York. And it's a landmark. And it's a landmass. that where people know that everyone else knows that it's a big landmark. And so, you know, you're more likely to go there because you're reasoning that the other person is reasoning the same way. Now, of course, to be fair, if I went to New York, I would probably not choose Grand Central

Starting point is 01:05:57 Station. I would choose Times Square. And I actually am not sure exactly what Grand Central Station is. But, like, this just shows how these shelling points can be kind of different across different communities. And the conception of legitimacy, I guess, Like, it's basically the exact same kind of phenomenon. And though it's something that's not just applied to like one-time actions.

Starting point is 01:06:25 It's also something that's just applied to these long ongoing processes. I think the key lesson is just that like this idea that there's just so many different contexts in our like collective human activity where it makes sense to take, to make the same choice as other people. but everyone's trying to make the choice at the same time without having perfect information of everyone else's choice. And so they just have to like collage onto ideas that they expect everyone else to consider intuitive. Like that's, it's just this really important thing and it affects a huge amount of behavior.

Starting point is 01:06:59 And so I think a lot of people in history have kind of identified the importance of this. And also in this article, in many of your other articles as well, you've used this alternative shelling concept as a shelling fence, which I'm actually unfamiliar with. So maybe you could help us learn what a shelling fence is in contrast to a shelling point

Starting point is 01:07:19 and how it relates to legitimacy. Yeah, so a shelling fence is this idea that, like, you can go up to a... It's a common agreement that you can go up to a certain point, but you can't go further than that point. So, well, the shelling fence is actually an ideal analogy because, like, literal fences, even when they're insular fences, even when they're insecure or shelling fences in some way, right? Like because what you imagine, you know, you have two farmers and they both have their farms

Starting point is 01:07:49 and there's a fence between those two farms, then like it's beneficial for the two farmers' relationships for them to both agree on like, this is my land and this is your land. And I'm not going to like go and grab things from your lands and you're not going to go and grab things from my land. And if there is just any kind of natural landmark, like whether it's a river or even just like whether it's just an actual fence to someone put there. That's just the fact that it's the most visible landmark, just like is the thing that makes it clear that, you know,

Starting point is 01:08:19 you're not going to go past like that point. And there's a lot of, like one other example of this, like say in the crypto space, might be that you could conceive of a blockchain community where people in that blockchain community are okay with, say, a portion of transaction fees being redirected to a debt fund, but they would not be okay with issuance going into a deaf fund. And now you might ask, well, like, why this arbitrary distinction, right? Like transaction fees are like a unit of currency. A blocker reward is a unit of currency. And like really, 20% of transaction fees is much greater than 0.01 coins of block reward. So why be okay with the first thing, but not be okay with the

Starting point is 01:09:04 second thing. And the reason, like, there's a very rational reason to be okay with arbitrary distinctions like this. And the reason basically is, like, it's a slippery slope effect, right? Like, slippery slopes are not fallacies. You know, they're like, it is definitely true that once, if you start accepting that, you know, let's have a zero point zero one coin blocker word going to a death fund, then you've really kind of reduced the strength of the argument against, having an even bigger debt fund. And so if the community agrees that they want a medium-sized debt fund, but they also still wants to kind of keep a barrier that very clearly prevents them from going even further because they want to, you know, protect like their monetary legitimacy,

Starting point is 01:09:54 then, you know, saying a portion of transaction fees can go to a deaf fund, but a portion of issue, but issuance cannot. Like, it's just a very clear dividing boundary. And the existence of that dividing boundary, basically allows you to kind of go up to that dividing boundary without compromising on everyone's really strong agreement that you can't do anything beyond that dividing boundary. And so, like, that's one, that's one example of something that could happen. Another example of a shelling fence is just like zero is a very common shelling fence. So just the facts that, like, you don't want to start doing certain things at all. Like, you don't want to start having a deaf fund at all. You don't want to start like, you know, even just like doing coin

Starting point is 01:10:39 rescues at a hard forks at all. Because if you start doing them at all, then you've severely weakened your argument against going further. And then once you go further, you've severely weakened your arguments against going even further. And so like, you just have to like put your foot down somewhere and say like, this is the limit. And oftentimes, like, there isn't a kind of intuitive spot to put that limit except for zero. And so that's why, Like sometimes we just have to agree that like, you know, we're going to put our foot down and we're going to say zero is the limit. Even though from some like a kind of social optimality sense, the best amount might be some number higher than zero, like just because of limits to coordination. Like zero might just be the number that you choose.

Starting point is 01:11:21 Right. So like these kinds of like Bitcoin's monetary policy comes to mind. Yes. That's a definitely a great example. Like, you know, there's definitely a lot of Bitcoiners who would be willing to privately admit that like, yes, Bitcoin. would on net be better if you just said there's a 0.1 Bitcoin blocker word that continues permanently. But in practice, like everyone kind of agrees that once you start saying 0.1, then like you've really compromised your ability to argue against, say, increasing to 0.5 and then increasing to 2 and then

Starting point is 01:11:59 increasing even further. And the fact that everyone kind of like believes in this celebrity slope itself kind of contributes to everyone's understanding of the strength of not even starting to go down the slippery slope. And so like everyone's belief in the shelling fence essentially is the thing that just contributes to the shelling fence being so strong. Right. So I definitely expect that, you know, Bitcoin is going to have an extremely hard time going beyond the 21 million coin limit. Like, I actually think that, you know, if Bitcoin has a security crisis, so they start being successful 51% attacks against it, like there's basically three choices that they could

Starting point is 01:12:44 take, right? Choice one is compromising on 21 million. Choice two is just accepting the attacks and choice three is moving to at least hybrid proof of stake. And, I mean, I expect that there is a higher chance. that if there's a security crisis, they'll move to hybrid proof of stake just because even if the kind of like the core Bitcoin orati

Starting point is 01:13:06 really hate proof of stake, like just the facts that Ethereum and the fact that all these other platforms are running it are using it without a problem actually does contribute to its legitimacy. But if that did not happen, right, if like the hybrid proof of stake route was also out of the question, like they would much rather just accept the attacks

Starting point is 01:13:23 than they would accept a even slight issuance increase. just because of these shelling fences. Like basically, like, there's parts of the Bitcoin community that are even actively against making a shelling fence about any specific guarantee of security, right? Like, they even explicitly say things like, oh, you know, the Bitcoin blockchain is explicitly something that never finalizes. And so even reverting a week of activity is something that does not, like, explicitly violate the Bitcoin blockchain stated guarantees, which I think,

Starting point is 01:13:58 to an Ethereum person, like, sounds very insane. And I think in the Ethereum case, you know, if, like, there was a 51% attack that reverted a week of activity, we would just do a hard fork, right? Or at least a soft fork that just, like, did delete the attacking chain. But so, like, that's just like an example where I think, like, in the Ethereum case, like, just finality and the non-reversion is something just, like, is a stronger part of the social contract. And, like, you could even imagine a blockchain community that says, you know, we have a hard community norm against reversions longer than 24 hours. And so if the proof of work system reverse more than 24 hours, well, too bad, we're going to have to hard fork it. And if that happens, like, that's just

Starting point is 01:14:43 another example of like how, you know, like if you set the fence, then like that fence itself becomes like one of the self-reinforcing thing that's things that's really powerful. And so, like, how you set the norms at the beginning is just really important. I think the two Ethereum examples. One at the start of this was the block reward to developers' EIP did not get community traction and did not move forward. And that was sort of a shelling fence. Back to the zero to one.

Starting point is 01:15:12 Another example is probably, you sort of alluded to this, but the parity wallet hack, that was an EIP, that did not move forward because the question to the community for the shelling fence is, okay, then where does it stop? Which hack to we side to bail out? which do we not, let's just keep it at zero and not bail anybody out. I've got a wallet that has some ether in it that I would like to get back. Can I submit any IP for this? Yeah.

Starting point is 01:15:38 So, yeah, I think the EFP 999 case was interesting, right? Because the Dow fork, like, it did compromise the shelling fence of, like, basically no, no state intervention. And that is something that made a lot of people upset. And that is something it made a lot of people move to ETC. But even the people who did not move to ETC, like, they were. were they were kind of scared as a result. And so I think the rejection of EIP and 999 was in part motivated by this desire to like reestablish a developing a shelling fence and say, you know,

Starting point is 01:16:09 yes, we did the Dauph work, but you know, no, despite that, we have standards. And like, I think that was effective. Like I think that's something that a lot of Bitcoiners were not expecting. Like they really were expecting that, you know, if you do it once, you just keep doing it forever. But, you know, no, like the like EIP and 999 not have. happening. It did convince a lot of people that like, you know, like the Dow Fork happened once, but that does not mean that like Ethereum chain intervention is a free for all. So that was an interesting situation as well. So Vitalik, say the whole world will listen to this podcast and hopefully, hopefully that happens. And now the whole world is informed about this and this power called

Starting point is 01:16:53 legitimacy. And now that we have this name on it, we can actually discuss. it and talk about it in a more manifested sense. What can humans do with legitimacy? Like if everyone understands that this force exists, can we harness it? Like, what if we had more legitimacy in the world? What does it mean to be more legitimate? If we can harness this power, what could we do with it? So one very important form of legitimacy in the world is property rights, right? Like, property rights are something that, like, sits on top of legitimacy, right? Like, people are not going to be able to like successfully conquer your house and maintain your position inside the house because like there are these conceptions of legitimacy.

Starting point is 01:17:35 And, you know, the police know that if someone conquers your house and sets up camp in it, they have to come in and dislodge them. And then they know this because they know that if they don't do this, then other people and the government are going to yell at them and they're going to do it themselves. And then at some point it escalates to the military. then if the military doesn't do that, then, you know, the government's going to get voted out of office. So there's this kind of towering set of expectations. And it even towers internationally to some extent that are based that are protecting your house. Right. And so if that conception of legitimacy did not exist, then, you know, yes, like someone who had more guns can like just like conquer your house and set up shop inside of it. So the interesting thing about property rights is, you know,

Starting point is 01:18:23 is that just because of like a new technology, you often see new property rights or the need for new property rights emerging. So like one example of this is, we can talk about Antarctica. Right. So like right now Antarctica is this backwater that very few people care about. And it's mostly just like a place for scientific research. But there's a possibility that within half a century Antarctica is going to become more important. So a big part of the reason why is global warming, right? So the climate is expected to warm by several

Starting point is 01:18:59 degrees over the course of the next few decades. And like people have done the kind of the analysis of like how this is going to affect the temperature and livability of different places. And western Antarctica, like that peninsula that's like just a thousand kilometers south of South America, is expected to potentially become a, is somewhat a viable place for settlement. like within half a century, right? And so as one of the interesting secondary consequences of global warming is that we could actually see Antarctica becoming this like thing that people care about considerably more than they did before. Now, the problem right now is that like there aren't really strong conceptions of property rights around Antarctica because like just not enough people

Starting point is 01:19:46 care about doing anything with Antarctica that like it like on the current margins it's not rivalrous basically, right? But eventually, like, we can imagine a future where Western Antarctica becomes rivalrous and, like, you will need a conception of property rights. So you could also extend this to the moon or space or other areas of concord property. So, like, one thing that we could agree on for, like, Antarctica right now is we could just say, hey, how about we agree right now that we're going to, like, say, have some global body, could be the UN, could be some special purpose separate thing, put Harbaker taxes on Antarctica on Antarctica and just like, instead of just giving it to whoever comes first, you just like put this sort of like permanent

Starting point is 01:20:31 sort of like half ownership, half lease type mechanism on it. And then the revenues from the harbaker tax would just go into a global basic income. Right. So if you do this, then you've basically created this global basic income fund. And like you could imagine every person in the world, you know, gaining like probably not enough money to eat, but like at least. you know, some like tens of dollars a year. And if that happens, like, that's something that could be good for humanity, right? But in order to arrange something like that, like you do need to have some conception of legitimacy.

Starting point is 01:21:04 Like, you need to have a wide enough common agreements that, you know, Western Antarctica would actually be a kind of like, or property rights in Western Antarctica would be managed under this scheme that has revenue going to this place that then distributes it, it among everyone and gives everyone a basic income that you, like, so that these property rights like would actually just be valid, right? Because if it's only a few people trying to implement this, but like actually, you know, just like some powerful country comes in and says, like, you know, yeah, no, this thing's ours, then like that it's not going to succeed, right? And so, like, that's just like one possible example of like something where if you start, like, if you start

Starting point is 01:21:51 a kind of like engaging in public discourse and sort of shoring up legitimacy behind this idea that, you know, if Western Antarctica becomes important, then we're going to harbor tax it and give Iran a basic income, then like that increases the chance that actually, that actually does become the equilibrium that happens. But on the other hand, if no one starts talking about it, then like that's just not going to happen and you'll get a result that's probably less interesting. I think what we're getting from that is what can we do with more legitimacy is we can play better social coordination games. And that's what human beings are really good at. That's how we've found

Starting point is 01:22:26 success as a species. Let's talk a bit more about crypto, because I think what we're unlocking in this concept of legitimacy with the post and the description thus far is, I'm not going to say a theory to everything, but it's an answer to many of the FAQs that I hear when people first come into crypto. So let me give an example. a couple we've covered. One is, like, why can't Ethereum just have issue an EIP and fund its public goods that way? And we can't because of legitimacy. You gave another example of, you know, why can't a bank, for instance, acquire a defy protocol?

Starting point is 01:23:09 Well, they can't. We have the Steam versus Justin's son example because the thing that they're acquiring is actually a social consensus and they can't just buy legitimacy. They almost have to earn it. Here's another question I think people ask when they get in the space. And this was a common question in 2013, 2014 about why Bitcoin is valuable. And some critics have said back then, especially, Bitcoin will never be valuable because anybody can just create a fork. I could create, take my Bitcoin and then say this is the legitimate Bitcoin. It's called Bitcoin Ryan.

Starting point is 01:23:42 And like that turned out to be completely not true because of legitimacy. Would you agree with that? Definitely. Well, so the interesting thing also is that like there is Bitcoin maximalists who said that, you know, for Bitcoin to maintain and its value, like Bitcoin has to be accepted as the only one because if people start accepting the legitimacy of other cryptocurrencies, then like the ability of Bitcoin to maintain any kind of special status just like disappears. And people start acting like they're all the same and cryptocurrency as a sector hyperinflates. And we discovered that that's completely not true, right? Like anyone can print a new cryptocurrency, but printing a new cryptocurrency that has the legitimacy to gain value is something that actually is hard, right?

Starting point is 01:24:30 And it's something that takes a lot of effort. It's something like that not everyone can do. And it is very possible for, you know, Bitcoin to have a lot of legitimacy, Bitcoin cash to have less legitimacy, Bitcoin ABC to have even less but still non-zero legitimacy. and then, you know, Bitcoin Ryan would probably like, I mean, I'm sure if you memed it, it would like get up to a few hundred thousand dollars, but like, you know, even less than Bitcoin Diamond or Bitcoin ABC basically, right? So like there being multiple cryptocurrencies is something that has proven to be a yes,

Starting point is 01:25:04 stable equilibrium, which is, I think, something that a lot of people like give, especially very early in the crypto space did not expect. I also think another example of this is many of the Ethereum killers that have come about, talk about, they emphasize their technology, right? More scalability, this sort of thing. And they don't emphasize legitimacy. They don't emphasize social scalability. And they think this is purely a technical battle, but it's not. It's a legitimacy battle. It's a social coordination battle. It's about where the developers, of the future feel comfortable, like which platform they feel comfortable building on top of and where the users feel comfortable actually using without losing their property rights. Another example. You gave an example in the post that I think is interesting, which is why do defy apps,

Starting point is 01:25:59 it seems like, prefer die rather than tether? Legitimacy. Yeah. Yeah. Well, the interesting thing I gave in that example, right, is that like traders are often perfectly fine with tether, but daps are preferred. strongly prefer dye over tether. And the reason is that legitimacy is fundamentally about coordination. And traders don't really have to coordinate, right? There's just like trading. And their main

Starting point is 01:26:22 interaction with other traders is competitive. And so like for a trader, like if you personally believe that like, well, you know, maybe tether has some sketchiness inside of it, but like, meh, whatever, it's fine. Then like, that's fine. And you can just keep using tether. But for, if you're building an application, then you need something that not just you can but that you can easily convince other observers and even like fairly low information observers that you're building on top of something sound. And so it's something like die where it's a legitimacy model doesn't fundamentally rely on, you know, very socially unscailable assumptions about like how honorable Bitfinex people are. Like there's something like it's just easier to get

Starting point is 01:27:06 behind. I think we can also extrapolate the confusion perhaps behind NFTs and why NFTs. And have value and answer that question with legitimacy. And a nice example that I like to use is the creator of the NionCat GIF. He made this NyanCat GIF many, many, many years ago. And then recently he remastered it. So he made a brand new GIF, the brand new GIF. And then he sold that brand new GIF for 300 ETH. And there's two sources of legitimacy that I see coming into this GIF.

Starting point is 01:27:39 One is continuity, where even though it's... a brand new gift, it continues from the same meme of the NionCat that has almost been around for a whole entire decade, and legitimacy as the artist who created the NFT in the first place. It was the original artist who remastered the NionCat GIF, not some new unknown artist. And I think we can extrapolate this to most all NFTs at large, where it's not about the JPEG, it's about the legitimacy. And so Vitalik, how do you see legitimacy in NFTs intersecting? Yeah, I think that's definitely an excellent example, right? Because like the question is like, first of all, you know, an NFT of a Yan-Kat is clearly more successful than the same author making an NFT of some completely new turtle meme.

Starting point is 01:28:31 But second, a Nyancat meme made by the author of the original Nyancat meme is more successful than just like some random personal. doing it, right? And so, like, there's legitimacy in the meme. There is legitimacy in the person, and, you know, there's other kinds of legitimacy as well, and they do sort of kind of add up and stack on top of each other. Now, the reason why legitimacy is important in NFTs is because if you look at the reasons why anyone would want an NFT in the first place, right? Like, one of them is, you want, you're more likely to buy an NFT if you know that you can resell it later. Another one is you want an NFT for social branding rights. And all of these, like, basically all the motivations for why you could conceivably want an NFT are very closely bound up with the fact that other people also accept that this is an NFT that should be have value.

Starting point is 01:29:33 Right. And so, you know, even if like you personally think that a, you know, purple hexagon is something. that's like really important to the world and is something that should be worth billions. Like, nobody else agrees that purple hexagons should be worth billions. And so, you know, you're not going to spend much money buying a purple hexagon NFT because, like, you might get a bit of personal satisfaction, but because nobody else cares about purple hexagons, like your level of personal satisfaction will be limited and your ability to resell it will also be extremely limited and probably zero as well.

Starting point is 01:30:08 And, like, we see these kind of, like, conformist. some patterns occurring in markets all the time, right? Like, for example, one of the reasons why houses tends to be relatively standardized and uncreative is because when you buy a house, you want to buy a house that you can sell easily. And then the person you're selling to also wants a house that they know that they can sell easily. And so if you buy a house that is just kid forms to the average person's expectations of a house, then not only do you know that you can easily find someone who wants to live in it, you know that you can sell it to someone else because you can easily convince the person that you're selling to that they might later

Starting point is 01:30:52 be able to sell it along to someone else as well, right? And so like you can often like get these throughout effects that just like kind of prop up the value of some houses over others for a long time. And these are just like these sort of second layer equilibria that just, you know, exist on top, like, you know, weird social forces. And with NFTs, it's true as well, right? And so with NFT is like, yeah, if someone else made a NANCAT, then it would be much easier, harder for you to resell it, and, like, you would just gain much less social satisfaction for having it.

Starting point is 01:31:29 And so, you know, just for all of the reasons, it's much less valuable. And so what this means is that NFTs are kind of heavily defined by legitimacy. And if we can affect these conceptions of legitimacy, then we could potentially kind of turn NFTs in or or at least nudge NFTs into something that's really useful for just like funding or funneling valuable resource or resources to things that are valuable for society. Right. So like one example that I gave is if we create a conception that an NFT is more legitimate, if it's kind of connected to some non-profit. organization and some portion of the revenues go to that organization. And if people accept that like NFTs with this property are like more legitimate because they're like more scarce in some way than NFTs that I do not have this connection,

Starting point is 01:32:22 then that's like if that equilibrium exists, then that's something that will just end up like funneling resources or these nonprofit organizations. And like trying to actively participate in trying to create these equilibria as something that we should be really, I think, focused on and like interested in trying to make happen. What you're saying, I've seen this in the analog space, there's a brand called Red. I don't know if you've seen this, but there was a period of time where, like, Starbucks was branding their coffee, red, and you'd see Red everywhere. And I believe that's a non-profits where some portion of the donation from that product went to AIDS.

Starting point is 01:33:01 And now I think it's COVID-19. But that's the kind of thing you're talking about, where they branded all of these products and increased demand because now I buy my Starbucks and I'm feeling like I'm actually giving back to something that I support, something like that for NFTs. Absolutely. I'm reminded of like the event where when somebody buys a new boat, they swing a bottle of champagne and it breaks upon the boat and it's like this christening event for this boat and it has nothing to do with legitimacy, but with an NFT, when you are selling this NFT and you're committing some amount of funds to charity, it feels like a christening event of this NFT. You use the term blessed.

Starting point is 01:33:36 in your article where you are blessing this NFT, bestowing it with legitimacy. And what was interesting to me is not a week after you published this article, did the Uniswap v3 X times Y equals K NFT come out. And not only was a chunk of that revenue of that NFT donated to charity, all of it was donated to charity. Do you think that if we want to give some perhaps some actionable advice to NFT artists, that it would actually be behooved,

Starting point is 01:34:06 them from a revenue maximumist perspective to donate some of their their NFT sale revenue to charities? I think that's absolutely the case. I mean, I think it's even one of those things that could sort of like flow in one direction because if nobody else is making an NFT going to charity and you make an NFT where some part goes to charity, then, you know, just by that fact, your NFT is special and people are more likely to pay attention to it. But then if lots of people are already making NFTs that go to charity, then, you know, that fact just like gains what the fact that an NFT is supposed to be blessed by some charity becomes like this part of its legitimacy. And just like by that pressure as well, you know, it ends up being just like more effective

Starting point is 01:34:54 to make an NFT where some portion goes to a charity. So this is something that like I'm hoping not just NFT artists think about, but even like major NFT platforms think about, like just incorporating some notion of, you know, flagging NFTs that have been blessed by a charity as being that and just making this very clear to buyers. Like, I think if this is something that can be coordinated among, I think a relatively small number of actors in the ecosystem, then the results could be really interesting. So, Vitalik, I think the bankless community would also love your thoughts on another subject that I feel like is actually very quite, quite related to legitimacy. And that's a topic that has been top

Starting point is 01:35:37 of mind for the last couple of months. And that is the topic of ethas ultrasound money. So this is kind of a, I call it a narrative that, you know, is, that Justin Drake actually helped define it. I think you had some role in actually naming this concept as well. But the way it relates to legitimacy is I have sent that podcast to many Bitcoiners I know, and I've invited many who have been previously skeptical about Ethereum and its future guarantees, security guarantees, monetary guarantees, or otherwise to listen to it. And I've asked for feedback. And many don't listen to it, of course. Many don't go down the journey. But those who do generally have a consistent piece of feedback, and that is this. The monetary policy is still illegitimate of Ethereum

Starting point is 01:36:32 because it's being changed, right? So the fact that it can be tweaked at this point is outside of sound money behavior, as kind of defined by Bitcoin. Can we talk about that for a minute? I guess maybe the context is ultrasound money, but also like, what do you? What do you think a legitimate issuance policy looks like for a cryptocurrency? I think that's definitely a great question. And I think, you know, the concept of legitimacy is definitely really important to like this ultrasound question in like a bunch of really subtle ways, right? I think the thing, the key thing that's important here is that there is a shift of a shift of, of legitimacy in thinking of ETH as, you know, a type of money of any kind, right?

Starting point is 01:37:32 Like closer to the beginning of Ethereum's history, and ETH was more viewed as like basically this thing that you would use to pay for gas, but not really something that, you know, you would actually want to use as an asset. And over time, this is, I think, a push from the community much more than it is anything happening from, you know, the Ethereum Foundation or the core developers. Actually, I think it's entirely a push from the ETA community is that people just started, like, talking about, you know, ETH as an asset and, like, basically wanting to confer inherent legitimacy to ETH as an asset more and more.

Starting point is 01:38:14 And I think the place where the ultrasound money kind of meme and the discussion around how proof of stake and EAP 1559 fit, uh, fit into that is that those things, like, even now, they signal a commitment to the fact that a large portion of the Ethereum ecosystem, like wants if to be, um, ultrasound money. And like an asset having a community that wants it to be an ultrasound money is a good property for an ultrasound money to have, right? Like an asset is more effective as an ultrasound money if it has a big portion of its community talking about how that asset is ultrasound money because that community talking about the ultrasound money meme itself basically makes it be part of the social contract and makes it more likely that things that are supportive of that asset becoming ultrasound money will be implemented and things that are opposed to that asset being ultrasound money will not be implemented. right? So I think just if gaining kind of legitimacy through this kind of like self-created

Starting point is 01:39:30 ultrasound money concept is definitely a thing that is happening. Now, of course, I mean, legitimacy is always something that's different and different communities. And I think there definitely is a cultural difference between the Ethereum and Bitcoin communities, right? Because I think Ethereum people are more accustomed to, like, valuing Ethereum based on its future, whereas Bitcoin people are much more accustomed to valuing Bitcoin based on its presence, right? Like, I've expressed this before as Ethereum people think Ethereum, or sorry, Bitcoin people think Bitcoin is 80% complete. Ethereum people think Ethereum is 40% complete. And, like, both sides are comfortable with that and think the other side is crazy for, like, taking the opposite choice, right? And so, like, at least within the Ethereum community, the fact that there is intent to do 5059 and the proof of stake switch and to bound issuance and all of this stuff is already enough for them, right? Like, it's the intent and direction of the social contract that's even the most important thing. Whereas I imagine to the Bitcoin audience, like, until it's implemented in code, it doesn't count. And maybe that's fine.

Starting point is 01:40:43 Like, I think. I think they almost feel like Vitalik, until it's implemented code, and like 20 years have passed. Yes. It's not fine. I think that's definitely true. Yeah. Like Bitcoin people are definitely just like less comfortable with the concept of social contracts defining a direction instead of defining a permanent state.

Starting point is 01:41:08 And the Ethereum social contract for at least the first 10 years of its existence, you know, the last six and the next few as well, like is one that defines. lines a direction, right? The social contract has included proof of stake in charting from since before the Ethereum blockchain launched. Now, over time, I do think that the Ethereum social contract is going to switch to one that's more of maintenance. And that's just something that has to happen over time, because once we do have proof of stake, like, there isn't a proof of something that's even better than proof of stake that we want to switch to. And once we have sharding, well, like, if we want more scalability, you just add more shards, right? And so, like, there isn't, you know, something even better that you want to, like,

Starting point is 01:41:55 make big fundamental economic upgrades to after those upgrades are done. And, like, once you, once we have proof of sharding and proof of stake, like, we have, well, what I call functionality escape velocity, right? And so anything that you want on top, you actually can implement with lawyer two protocols. So there's less need to make further change. changes to layer one, right? So for those reasons, I do think that the Ethereum social contract is going to move toward a being a stabilizing one instead of being a directional one over time. And once it does that, then I expect, like, a lot of the Bitcoin people that are more

Starting point is 01:42:33 comfortable with a stabilizing social contract are just going to slowly accept Ethereum as being legitimate. And I think, like, Ethereum successfully completing its two biggest shifts. So the EAP-15, 59 and the introduction to a proof of stake and possibly sharding as well. That is the thing that's going to actually sort of do most of the work in convincing them, basically. It's funny to me because it seems to be the case that if given issuance policy is fixed and the security issues that result of that, Bitcoin is going to have to revert to its social contract to decide a direction in the future. You know, you talked about three possible paths for Bitcoin, increasing issuance, you know, letting transactions essentially take a long time to process or reverting

Starting point is 01:43:24 to some proof of stake, proof of work. So it's almost like it's all social consensus and social contract at the base layer anyway. And there's no such thing as completely immutable like code that doesn't change. Yeah, no, it's definitely social contracts all the way down. And you can have different kinds of social contracts. Like you can have social contracts that like prescribe more rigidness. Like you could have a social contract that says, you know, if a block cannot be verified by this ZKSanark verifier where the GitHub hash of the code is 0x5A1C84C, blah, blah, then it is not Bitcoin or it is not whatever currency. where like you could be really, really strict and try to like define a piece of code as being the social contract. And that's good for preventing change.

Starting point is 01:44:16 But then the problem is like, well, if the code even has a bug, then, you know, like just any kind of technical, unexpected situation is just going to cause huge problems for your community and possibly even, you know, lead to a chain split. And that's a cost you incur if you have an overly rigid social consensus. But if you have a social contract that just, just says, you know, we vaguely care about these values and we're just going to do whatever we need to do to implement those values, then that's something that's more adaptable to just changes in circumstances and changes in technology. But that also is something that

Starting point is 01:44:56 just gives participants in the ecosystem fewer guarantees. And especially if participants in the ecosystem just like have different views about what it actually takes to realize those values. right. And so there is this tradeoff, like there is such a thing as social contracts being more rigid and social contracts being more loose and there's benefits from one and there's benefits from the other. And I think in general, like blockchain social contracts should be more loose when a blockchain is new and still rapidly growing and they should kind of just naturally allow themselves to evolve to being more rigid over time as a blockchain discovers what it's for. And that's perfectly fine. In my episodes,

Starting point is 01:45:35 in my other podcast, P.OV Crypto with Christian Kurolas. We talked about this subject of social contracts when he was very adamant that Bitcoin is not ruled by social contract, is ruled by math. But we actually came to an agreement when I proposed this alternative to him where I said Bitcoin social contract is to not have a social contract, which kind of gets to what Bitcoin wants to be, which is ruled by math. But still, like you said, it's social contract. It's social contracts all the way down. Social contracts are unavoidable. The best thing that you could do, which kind of goes back to how a zero is a good shelling point, the social contract to not have a social contract is the best way to not have a social contract, but you still have a social

Starting point is 01:46:22 contract. Right, right, right. Yeah. That's a show clip, David. Yeah, no, it's definitely fascinating. Like, I think, you know, we all agree that at the end of the day, there is a lot of like pretending going on like you know in reality when quantum computers come in they are going to take some very uh kind of directed emergency action to protect people's coins uh when if uh there's uh some 51 percent minor that just like start spawn camping the chain they're going to take a very directed action to change the proof of work algorithm and so there are these like things at the extremes that are obviously going to happen but like this there is this social contract of like, well, you know, let's like not even talk about the extremes

Starting point is 01:47:10 and not sort of like maintain the mindset that these extremes do not exist. And like for as long as that survives, like that the idea is that just like increases the social pressure against like forcing a change by trying to claim that there's that there's some extreme that justifies it. So it's interesting. Like it's definitely one way of designing a social system. But I guess So we'll see how it goes. Fatalek, I want to back up and zoom out a little bit. A second ago, you were talking about how the ETH can be money if the community wants it to be money. And I'm reminded of, I actually asked you the same question back in Tel Aviv in early 2020

Starting point is 01:47:50 when you were on a Q&A panel with Joe Lubin. And you had said something along the lines of how, like, the Bitcoin could take the monetary use cases of blockchain and Ethereum can take anything else. And I raised my hand and I said, well, I'm, I'm. part of this crew that really thinks that ether could be a really compelling money above and beyond beyond Bitcoin. And actually, Ryan was really the first person to just instantiate. And it started just, I'm pretty sure with the tweet, ETH is money. And that meme just caught like wildfire. And to me, it became very, very obvious that at least there's this core group of Ethereum

Starting point is 01:48:24 community members who believe ETH is money and that ETH is legitimate. And that was a year and a half ago. And I think that the narrative around ETH as money, as well as the fundamentals, which is what backs up legitimacy, has really matured and evolved since then. And so now that we are at this, like, the early 2021 phase with EIP-1559 on the horizon and proof of stake merge around the corner, do you think the world is ready to accept Ether as a brand new macro store value asset alongside Bitcoin in public consciousness? I would say it's definitely getting there. And I think that to get the acceptance really up there, we do actually need to finish

Starting point is 01:49:10 the IP 1559 and finish the merge and get to the point where, you know, the system after all of the big changes is running and it's stable and people see that it's stable. But like it's not going to, it's very hard for something to gain legitimacy while there's still this roadmap to like change everything. a few months into the future. Like, I do think that we are already getting some of the benefits. So, like, for example, you know, people have been talking a lot about environmental issues of proof of work, right?

Starting point is 01:49:42 And, like, I think that issue is really substantial. And I think, like, it's, there's actually a lot of different externalities that are pretty negative from a proof of work, right? Like, people focus on electricity. And in some ways, electricity is even one of the easiest ones to, like, argue. against because like, oh, you know, we have solar power and oh, we have all of this power and far off places where sometimes it just gets wasted already. But like you have to remember that in addition to the electricity issues, which there's also the hardware issues,

Starting point is 01:50:15 hardware is a huge portion of mining costs. So last time I made, I get checked. There was even something like two thirds of them. I'm not sure exactly what the percentage is now. But like hardware is very environmentally unfriendly to manufacture. There's also a lot of, you know, there's also like displacement issues, like work that's being done on producing these hard these things is being done instead of work that could be done by the computing industry to make things that benefit humanity more. You know, gamers are having a hard time not getting a piece, or dealing with a reduced supply of PCs. And then, you know, with ASICs as well, like if people weren't working on Bitcoin ASICs, what other kind of ASICs would they, would they be working on?

Starting point is 01:50:58 and proof of stake does actually solve these issues. And so I do think that the Ethereum is gaining some kind of like, at least the beginnings of interest as some kind of alternative because people see that this is a shift that's coming. And, you know, basically, if it, you know, it is a sort of do or die thing, right? Like, you know, Ethereum is going to either complete the switch or it's going to die trying. and that's the fact that that roadmap exists and the fact that that roadmap is looking more and more credible now,

Starting point is 01:51:35 now that we have a running beacon chain, now that we just finished the Berlin hard fork and we're literally on the finish line to 50-59, and then after that we'll be on the finish line to the merge. You know, the fact that there is a hackathon implementing the merge happening right now, like, those things definitely are contributing. and those effects will just like become slowly more and more real in people's minds over time as the event gets closer.

Starting point is 01:52:03 And then the event happening by itself will obviously be a really huge flip. So that's going to be interesting to watch. Yeah, people forget that legitimacy, particularly for institutions like public blockchains and the store value assets that they might represent. I mean, it's going to take years to play out. Many, many years. And we are so early in this. There is almost a sense of like there's no rush. It would be unhealthy to me if the world suddenly adopt these things as store value assets like overnight, right?

Starting point is 01:52:32 This has to happen in a gradual way. Vitalik, thank you so much for sharing all your thoughts on legitimacy. I think this is going to be a fantastic mental model for people to try to understand what's going on in this space. I want to end with this question. It's 2021. We are in still the first half, but getting close to the second half. but getting close to the second half. In the grand scheme of things,

Starting point is 01:52:55 how would you characterize this era of Ethereum? I think it's like the era where the ecosystem is like really growing up and starting to enter its phase of maturity. And I think it's happening in a lot of ways, right? Like it's happening because the road, the technical roadmap is finally, at least seeing its first major pieces get finished. It's happening because scalability is finally looking months away from actually happening. It's happening because we're actually seeing applications of serious value to not just the crypto community,

Starting point is 01:53:38 but to the mainstream starting to emerge. The whole NFT thing, I think, was actually really interesting for Ethereum because it actually is the thing that sort of started giving Ethereum some legitimacy in its own right. Right. Like before the NFT thing, I think people most we talked about Ethereum in reference to talking about Bitcoin, right? You know, there's, you have an article about Bitcoin and you just mentioned, you know, oh, there's also these other cryptocurrencies that exist. And then there's this thing called Ethereum and then there's, you know, this thing called Cardano. And then there's this thing called pickup truck dono. And then, you know, you keep going. But. And they're all the same thing. They're all just these other cryptocurrencies. Yeah, exactly. Yeah. And with NFTs, like, you know, you actually have a reason to talk about Ethereum without reference to, you know, talking about its big brother, which is interesting, right? So then even aside from NFTs, there's other things happening as well, right? Like, there's just more people experimenting with ETH as a payment mechanism. Like, we saw the announcements from, like, I think it was PayPal and some of these other, like, like, you know, big U.S. companies, they're not just accepting Bitcoin. They're accepting, like,

Starting point is 01:54:54 Bitcoin, cash, ether and light coin at the same time. And like, I think that set of four is just fascinating because like, like, the sort of like holdover legitimacy by continuity that Bitcoin cash and light coin just like get that allows them to be accepted is just like so fascinating and interesting to observe. But like seeing that starts to happen in. is really interesting. And, you know, I expect that applications are going to continue to mature once scalability is ready, then the applications are really going to go into overdrive. And then once the EIP 50-59 and proof of stake is complete, including the merge being complete,

Starting point is 01:55:39 then, you know, the ultrasound money thing will, instead of like just being a technical goal actually becomes real. And seeing that happen at the same time is just going to be really interesting for the ecosystem. Absolutely. We are at an exciting juncture for sure. Vitalik, thank you so much for sharing this with us from a macro perspective. It definitely feels like public blockchains, Ethereum, CryptoS and asset class is entering the world of legitimacy. And this decade's going to be super exciting. So thanks for hanging with us today. Thank you very much. Thank you, David. Cheers. Action items for the bankless community. We've got some reading assignments. you check out Vitalik's post, the most important scarce resource is legitimacy. That's where he goes

Starting point is 01:56:24 through the details that we talked about today. Also, read one of his Reddit threads. This was a brain dump that he made on proof of stake versus proof of work. I think after listening to the ultrasound money posts, a lot of great comments from the community there too. And then we've got almost like a Vitalik bankless anthology brewing. There are a few episodes where Vitalik went through Why Proof of Steak, designing Ethereum, his reflections on 2020. 20 in crypto and beyond, we will include all of those resources for you in the show notes. Of course, guys, risks and disclaimers. This is not financial advice.

Starting point is 01:56:57 ETH is risky. Crypto is risky. So is defy. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But thanks for joining us on the bankless journey.

Bankless - 64 - Legitimacy | Vitalik Buterin

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