Bankless - 83 - Beyond Coin Voting Governance | Vitalik Buterin

Episode Date: September 20, 2021

Vitalik Buterin returns to the Podcast to discuss his recent article 'Moving Beyond Coin Voting Governance.' As always, Vitalik comes with a birds-eye view of high level challenges facing the crypto space with a moral & philosophical slant. Building sufficiently decentralized governance mechanisms is a hugely challenging endeavor. Tackling elegant solutions to coin voting, we also cover the benefits of running your own node, the metaverse, and an update on the Ethereum narrative. When Vitalik comes on Bankless, it's time to listen closely. ------- 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha  🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger  🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants  ------ 📣 TracerDAO | Perpetual Pools are now Live on Aribtrum! https://bankless.cc/Tracer  ------ Topics Covered: 0:00 Intro 4:00 Vitalik Returns! 7:26 Decentralized Governance 14:38 Who is Governance For? 19:44 Coordinating Public Goods 26:07 Public Goods & Upgrades 34:52 New Mechanisms 38:28 What is Blockchain Governance? 47:53 Ungovernance for Layer 1 54:00 Why Coin Voting Sucks 1:02:20 Whales 1:12:15 Running Your Own Node 1:22:14 Culture & Technology 1:26:51 Scalability Tradeoffs 1:31:05 The Metaverse & Loot 1:36:55 Update on Ethereum 1:43:15 Closing & Disclaimers ------ Resources: Vitalik on Twitter https://twitter.com/VitalikButerin?s=20  Moving beyond coin voting governance https://vitalik.ca/general/2021/08/16/voting3.html  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, Vitalik on the podcast, got to listen to every Vitalik episode, sometimes two or three times. This was a fantastic one. What did we cover? Yeah, we covered a bunch of different subjects. Every time for our quarterly check-in with Vitalik. He put up two articles that we wanted to go through. was Vitalik talking about how we could, you know, graduate or evolve from coin voting or token

voting in defy and also just token voting in general, kind of the issues that token voting presents and how we can circumvent around them with new governance mechanisms for defy apps. And as Ethereum becomes more and more valuable, as these defy apps become more and more valuable, the conversation as to how to govern these things in ways that aren't just centralizing control into token holders is going to become even more important. Then we also turn to the conversation, which is resurfaced lately regarding the infrastructure required to run a node for a blockchain, all of the different bottlenecks and requirements that you need in order to run a node and how these different choices that are made about hardware

requirements impact how scalable a blockchain is, both in terms of its actual throughput, but also in terms of its decentralization. Decentralization is also a scale that you can optimize for different ends of the spectrum. So we revisit that conversation as well. And then we finished off with some really fun stuff. We asked Vitalik about the Metaverse and whether or not Ethereum with this whole loot phenomenon has gone full circle. Vitalik always made the joke that he made Ethereum because he wanted to not ever get nerfed

by his like special spell or item. Level 60 Warlock or something. Exactly. Right. And so now that we have the Metaverse, we have this gaming structure that you can't actually get your assets or your spells rug pulled from you. So that conversation happens towards the end. And then of course we just check in with Ethereum about what.

where he considers Ethereum to be in its current state and history, both at the protocol level, but also in the mass adoption society level. So a bunch of different things here in this episode with Vitalik. Yeah, really relevant things too. Like, you know, number one is relevant because everything is a coin vote, right? And we talk about decentralized governance, but are we actually moving towards decentralized governance? The second thing's relevant because we have all of these high performance blockchains. David, you and I just did a panel, was kind of a debate-ish, but not really. It was a panel about Solana

and comparing and contrasting a high-performance blockchain like Solana to Ethereum. And it really centered around this question of how important is it for a user to have the ability to run a node? It turns out Vitalik and the Ethereum set of values think that it's very important for users to run a node,

have the ability to opt out so that the elites don't control the system, right? This is the trade-off you're often making with a high-performance, high transactional throughput blockchain and doesn't get a lot of press because it's easier during a bull market when price is rising and people want unlimited blocks based to just make these kinds of trade-off. So we discuss that. And then of course the Metaverse is always a really interesting conversation, the state of Ethereum. So guys, we think you are going to enjoy this episode

with Vitalik. Before we get into the details, before we get into the conversation, we want to thank the sponsors that made this episode possible. Living a bankless life requires taking control of your own private keys, not your keys, not your crypto. That's why so many in the bankless nation already have their ledger hardware wallets, which makes proper private key management a breeze. But the ledger ecosystem is more than just a secure hardware wallet. Ledger is the combination of the ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite DAPs all in one place, Ledger is where you want to be. Not only does Ledger let you buy crypto assets,

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Arbitrum is a layer two to Ethereum, which means Arbitrum can increase Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used. used to paying. When interacting with Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security. If you're a developer and you want to save on gas costs and make an overall better

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the podcast. He is the Ethereum co-founder researcher, guy who will never give you free ETH on Twitter. I can guarantee you that. Vitalik, welcome back to Bankless. Thank you very much. It's good to be here. It's awesome to have you again. I feel like this is an opportunity to have sort of a conversation with you and just pick your brain, almost like an ongoing conversation. The last time we chatted, we talked about the topic of legitimacy, and that was now three months ago. That was in May. So three months is a long time in crypto. It's probably like three years in the regular world. We've hit new milestones. There have been new issues, new insights.

You've written a slew of blog posts. We want to cover those as much as possible. This time, I think we want to lead with a topic that is top of mind in the crypto community. And I think it's part of your mind share as well because you wrote about it. And this is the topic of governance. So read your article about moving beyond coin voting. And if I could maybe summarize and give the headline here, It feels like after reading that, you kind of think coin voting sucks, that the community

shouldn't settle on it as the only solution, but that instead we should explore better decentralized governance protocols. So we want to start there and pick your brain on that subject. I guess my first question is this. When we talk about decentralized governance, do you think that's even possible, or is this somewhat of an aspirational goal that will never quite achieve? I mean, I think you can definitely have governance that's much more decentralized than, you know, the average thing that people call a centralized org. Obviously, the question of, like, how much decentralization can you achieve is a complicated and fascinating one.

And, I mean, there's the question of, like, what kind of benefits you can get from that decentralization? I think, but I do think that it, like, it is a worthwhile experiment. I think in particular, because, like, blockchain-based and decentralized platforms, like, they derive their entire value and legitimacy from creative, credible neutrality, as we've talked about before, right? And it's very difficult for a platform to claim to be incredibly neutral if there is a very small team that's controlling everything at all of the decision-making behind. it. So coming up with forms of governance that do not depend on a small team making all of the

decisions is it's definitely something that's very important for a bunch of reasons. But at the same time, like have coin holders voting is definitely far from the only way to do it. So when we talk about governance baked into that conversation implies that there's some sort of objective or direction that governance actually points towards. And in your article, we juxtapose to the difference between, or at least imply the difference between public goods and private goods, right? And when we have these defy apps, this financial infrastructure, and also Ethereum at large, I think there is a question outstanding as to who governance is actually governing over these

systems for. And so, like, one possible interpretation is that the governors of the MakerDAO system are governing in order to prioritize and uphold the value of the MKR token above all other things. Or an alternative interpretation might be that MKR is a token that is used to direct the MakerDAO application to become the best financial services product on Ethereum for the betterment of the users. And so when you think of governance, how would you answer who is governance for when we talk about all of these things that we are governing over? Yeah, I mean, I think that distinction between, like, is it for the benefit of the,

holders or the benefit of the users is really important, right? Because especially in the case of these platforms that contain a lot of what I call internal capital, right? In this case, it's like the ETH that's locked up in the Maker-Dell contract. Like, potentially you could imagine a world where, for a, well, like, let's say, for example, that, like, Rye does really well, and it ends up taking over and there ends up being this public consensus that Rye is better than die and die is kind of on the way out. But at the same time, there's like a couple of legacy organizations that still hold a whole bunch of dye. But like, you just know that over the next few years they're going to stop using dye and the platform's going to kind of slowly widow a way to having nothing. Right. Like,

in that situation, if you were an MKR holder, it's like if you feel like you don't have the long-term prospects anymore, it's absolutely in your long-term interest to just make a vote that just says, okay, guys, we're just going to snap up all the ETH that's locked up in the collateral for ourselves, distributed among the MPR holders, and screw the die holders because, well, we don't really have our long-term reputation anymore, right? And to me, that sounds like an outcome

that's pretty fair to describe as being, like, bad, right? So there's, like, I think in a lot of cases, there is alignment between the token holders and the users, but also in a lot, of cases there really isn't, right? In a lot of cases, like for example, sometimes, you know, the, the thing that the platform is trying to provide and just ends up requiring trust. And so you want governance that can actually, like, satisfy the user's trust, even if it's not in token holders' interests. Sometimes the participants in the community or even the creators of

the project, like they have particular values that they care about that go beyond the interest of token holders. So like, for example, I might care about economic equality and I might want to build, if I create a new token, build in a gadget that distributes, say, one unit of that token to every human per year, like, just because, like, I want the supply to be more egalitarian. Now, the existing token holders might not want that. And so, and they might want, you know, if they control the governance, they might end up, like, shutting it off or like basically a kind of stopping, you know, registration of new humans completely. So that's another example of where, like, there is some other goal that it seems reasonable

to try to, like, have a governance mechanism to achieve, but that goal does not end up being well aligned with the interest of any particular token holder. Another thing, I think, is also that, like, token holders, they often end up, holding tokens of a lot of different projects, right? Like, it often ends up being the case that, like, if you just try to use your token holders as a representative of your community, then those, like, the set of token holders that you get ends up being the same, right? Like, you know, there's these big investment funds and they have a big chunk of, you know,

the unilap, they have a big chunk of a whole bunch of these other projects. And basically, like, you end up losing the ability to have, kind of uniqueness and to have different communities that actually have like different values and are making kind of earnestly different attempts at pursuing whatever their goals are. So there's also just this kind of like this sort of risk of just, you know, homogenization in terms of like strategy before if token holders end up controlling things. So I think like those are some examples of reasons why governance that it's like, explicitly tries to do something other than satisfying the desires of token holders for their token to make more money is something that's important.

And it's something, like basically the reasons why it's important to empower other kinds of constituencies or at least create structures where even if token holders are part of their structures, token holders have some kind of like incentive to like actually participate in the in a way that serves those goals. So Vitalik, when you were writing your article, uh, are presenting an argument about why token vote sucks and we need better and better and stronger and more aligned mechanisms, who are you trying to, first off, I think I can claim that there is a values judgment baked into even writing the article in the first place, implying that, you know, you actually think that governance should be different and more inclusive.

And so when you were writing this article, who were you trying to get more included into governance? Or what was the goal of even bringing up this conversation? I think it's, first of all, it's a conversation that definitely did not start with that post, right? Like, yeah, I have been writing these posts on, like, you know, the one on collusion and on coordination problems. The post back in 2017 and 2018 on governance where I was,

criticizing what was going on in the EOC ecosystem with all of the bribing that was happening. So it's definitely something that I have been trying to express for a long time. And I guess I definitely felt the need to express it just much more cleanly and plainly in one of these, I mean, O'Block posts where just the whole point of the post is the title. But the reason why I felt that way is just because, you know, we have been seeing over the last year and a half this big emergence of these new DeFi protocols and DOWs of all kinds, right? And we've been seeing people do all these different experiments, some of these projects that are launching from zero. So, you know, they just start off being Dow's right from the beginning.

And the thing that I've been seeing, right, is that people feel the need to add decentralized governance. and I think there's good reasons why they feel that need. But at the same time, like, there just aren't any ideas available for how to implement that decentralized governance beyond, like, just token voting. And, like, someone needed to sort of just express that alternative, and it would just express the idea that there is an alternative to token voting and that alternatives to token voting are not, like, automatically centralized or whatever. In the absence of these alternatives, you think people just, you know,

settle on token vote as almost like a shell. point just because everyone else is doing it without doing it without even thinking about it. Yeah, totally. It's like that's a natural effect that happens everywhere, right? Like this is the whole, you know, if you do the same thing as everyone else and you fail, then like, it's not your fault. But if you do a, if you try something different from everyone else and you fail, then like everyone yells at you and you get fired, right?

Like this is the sort of, like that's the sort of thing that ends up, causing a lot of problems and a lot of contacts. I mean, even like, you know, we have, we have 206 different countries, but we have very far from 206 different approaches to policy and a whole bunch of important questions, some of them, some of which really could use a lot more diversity in options. So I guess I definitely am worried that if alternatives to coin voting don't kind of get expressed and at least intellectually expanded on, then, like, things will settle on coin voting

by default, and then we'll be having this conversation in five years anyway, but we'll be having it, like, just because, you know, the coin voting dallas will have all been captured in some way or other, and it will be much harder to steer away at that point. They used to say in enterprise sales circles, like, nobody ever got fired for buying IBM. Yes. It's like, so hard to get your product in there, because if you buy IBM, it's just, that's what everyone's doing. Fatala, we definitely want to get more into the nitty-gritty details of this conversation.

But I want to finish off this introduction part with this question. I was recently in a debate with a Bitcoin maximum, self-identified Bitcoin Maximilist. And one of his big critiques about Ethereum in proof of stake is that the proof of stake actually instantiates the value of the ether token a little bit more strongly than it does in proof of work. And so the Bitcoin, a Bitcoin or critique on Ethereum is that Ethereum is not a public resource. It's a private economy with private products that are meant to enrich ether holders. What say you about this?

I mean, isn't that true with Bitcoin as well? Right. I mean, Bitcoin is even more strongly enshrined into that Bitcoin blockchain that ether is enshrined into the Ethereum blockchain. Because in the Ethereum blockchain, well, okay, fine, you have to pay EIP 1559 fees and Eith. But in the Bitcoin blockchain, like, Bitcoin is literally the only thing that you can transact. And, yeah, it's like the Bitcoin blockchain almost explicitly exists to support the Bitcoin currency

and therefore like to support the economic interest of existing holders of the Bitcoin currency. Does that preclude these two things from being a public good then? I think in general, publicness is always a spectrum and not a binary, right? like I think there's almost like there's very few things in the world that are truly public right like there's uh and even like national governments right like you know national governments a lot of talking about themselves as like you know we're quote public you know the public sector and unlike these private entities that merely represent their own interests you know we represent quote all of society but like you know the reality is we live in an interconnected world and like you know does the U.S. government actively. represents the interests of, say, society in Afghanistan, right? So, like, every, like, pretty much anything that exists in the world as it is, like, it's somewhere on the spectrum between, you know, being something that exists just for one person and being something that exists for the entire world.

Some things come close to existing for the entire world, but some things are further, some things are even further. I think in the case of cryptocurrencies, like, It's definitely true that their supply is kind of supply distribution is kind of unbalanced. And I think like that is a legitimate problem. Like it would be nice if the supply of cryptocurrencies was more wide distributed. Though at the same time, I think Ethereum did do a better job than most other cryptocurrencies, right? I don't know if you read my recent article on the like the Genie Index and inequality.

one of the charts that I had in there was just like the percent's pre-mined and like the percent allocated to like existing kind of like closed off pre-investors and all these different blockchains that like ETH and Cosmos I think it was that were the only ones that were the only ones that were like pretty much completely downright dystopian. So that was so it's an issue. But right it was you know there it is Eith. And oh, right, no, it wasn't, yeah, Cosmos is up there. Oh, Tesos does a good job.

That's nice. I guess Cardano as well. Eos, I don't know. I mean, in the Eos case, I guess, like, wasn't there a lot of just, like, accusations of all kinds of wash trading in the sale, so I'm not sure how genuine the 10% figure is. But, like, you can just look at the chart, right? And you can see, you know, like, which of these blockchains, like are, like,

Which of these blockchains are the ones that, like, if Ethereum disappeared tomorrow, like you would personally feel like at all comfortable migrating to, right? Um, I guess so as far as coin holdings go, that's a legitimate issue. But then as far, like, the other thing is that blockchains are just about empowering people who hold the coins, right? They're about empowering users and they're about providing value to people by using those blockchains. And the ability to use Ethereum definitely is something that is like, I think, truly global.

And you do have people in all sorts of places that are, like, just benefiting from the ability to build things on Ethereum. And actually you have those applications that interact with each other and have people use those applications. So it is, I guess, Ethereum is not a perfect system, but also, like, pretty much anything else that calls itself public is very far from a perfect system either. So, you know, you can't have perfection, but we can try to kind of keep getting better and better than what we had before. Okay. So we can't have perfection, but we can try to keep getting better and better than before. But I guess that begs the question almost. Why is decentralized governance better in the first place? Now, some people would say, why go over all this trouble? I mean, we have shareholder vote in corporations. centralized governments do fairly well.

I know you mentioned in the top part of your article that some of these cypherpunk values are kind of embedded in the blockchain movement to minimize coercion, maximize coordination with minimal coercion, private property and markets. But why, from a values perspective, do you think decentralized governance is important? You mentioned credible neutrality, right?

So is this like a legitimacy and social scalability argument when you have decentralized governance, then you can get more people on board and it benefits more users? What's kind of the argument for all of this? So that's one good argument. Another good argument, I think, is that users want systems where the governance of those systems is just clearly not something that can easily screw them over, right? Like, if you look at Twitter and Facebook and all the centralized leptu companies, like, this happens

all the time, right? You have this ecosystem of startups that build. themselves around Facebook APIs or Twitter APIs and doing interesting things with those APIs until eventually, once they get big, get big enough, like Facebook ruckpoles them and says, like, you know, hey, guys, you know, either we buy your company that you spent years developing for $500,000 or, you know, tomorrow we're going to shut off your API and build our own competitor. And that's, Ethereum is not going to do that to you, right? You know, Bitcoin is also not going to do that to you.

So that's, like, like the facts that Ethereum governance just has so many stakeholders and the facts that users have to actually, like, choose to download and accept any of these software patches. And all of these things that together basically means that, like, there isn't this kind of ability to just, you know, immediately go and flip the switch on someone, which is, I think, something important.

and it's something that can easily make people feel much more comfortable building applications on Ethereum than they would feel building on one of these platforms that's just run by a single company. That's a good teaser for the second part where we want to talk a bit more about how users download the software. But before we're still on the subject of decentralized governance, I'm just curious for people who aren't sure of the types of decisions that actually need to. get made in blockchain systems or even in defy apps. I think you did a good job sort of splitting this into two areas. Like number one, there's this category of decisions around funding public goods, right? How do you fund things for the continuance, the good of the protocol itself? And the second is upgrades and improvements. So if there's some upgrade that needs to happen, who decides what, you know, features that should include or how that's pushed out? Could you get into these two things?

and the decisions that need to be made through decentralized governance. Right. So there is basically, I mean, I outlined two categories of decisions that some kind of governance is needed for. And so if you want to be decentralized, that decentralized governance is needed for. One of those categories is funding public goods, just funding people who or teams that do things that are useful to the project ecosystem, or even just more generally to the project's underlying goals. So this includes things like documentation, like software development, research,

like basically anything where the benefit provided by what you're doing isn't something that can be kind of packaged up and separately sold to individual people, right? Like, you know, we are doing this podcast, and then that podcast, you know, either it doesn't get published or it does get published, and once it gets published, anyone can see it. And then if I come up with an idea and I write it up on either research, like I can't, you know, charge subscription fees for that idea and only give access to that idea to people who like pay some amount of money, right?

It's, you know, either I do it for the world or I do it for nobody. And they're in the internet world, a large portion of like pretty much all things are like that, right? So, like funding those things is often a challenge because they tend because they suffer from the freewriter problem. right like if one person funds it and the end another person doesn't find it well both people benefit and so why would the first person fund it um so the the solution in the crypto space is basically like well if you have these protocols that do end up having some of some kind of ability to monetize then you know like that funding could then be directed into these public goods somehow right Like basically, not every project that's useful has a monetization strategy.

And so what you basically do is you take the things that have monetization strategies and the things that are useful, and you kind of line them up and plug them into each other. Right. So it's, so this is one thing that you need to have some governance a governance for, because once you start funding public goods, other than things that are really trivial to measure, like, for example, network security, once you start funding public goods, such as software development and documentation and translation and research that you can't measure programmatically, then you need some kind of governance system in order to figure out, well, which projects do you actually support in the first place, right? So that's one thing that governance is needed for.

The other thing is protocol upgrades and parameter changes. So one example of this might be like, you know, in MakerDAO you have this question of like, which, assets are considered acceptable for collateral. I mean, I've actually been critical of that aspect of MakerDAO, and one of the reasons why I liked Rai is because it just says, no, ETH is the only collateral that's ever going to exist. But even then, you need governance to figure out, like, what is the Oracle going to be? Like, who are the Oracle providers? In a system like Uniswap, you would need governance to figure out, say, right now, I think they use it to just, well, right now just for public goods funding, but in the future, it could be

used to decide, like, parameters of, like, fees of existing markets and things like that. In anything more complex, like, you would, let's see, like in something like ENS, well, in the case of ENS, I mean, they have these, like, they want to charge fees that are denominated in dollars, but then, you know, what happens if, like, do they charge it in one particular stable coin? What if that one particular stable coin disappears? Do they have to switch to a different stable coin? Like, there's these decisions that have to be made, right? And then there's just protocol upgrades in general. Like, what if, you know, they come up with a just completely better version of the protocol and they want to switch over the current protocol to that future protocol

without users needing to move everything that they're doing over manually. So that's something that's important as well. I mean, these could be pretty major decisions, right? When we're talking about just even 10% of ETH annual issuance is like hundreds of millions of dollars, right? And the governance power to direct that funding is quite a power indeed. Many of these DAOs also have billions of dollars in their treasury. And the power to direct that is quite a power. power indeed. So we're talking now about pretty high stakes, not like the early days of crypto,

where, you know, it was just kind of fun money. But like now we're talking about real systems, high stakes, many users, billions of dollars. Absolutely. The other thing I wanted to bring up with protocol changes is that like sometimes you might not even realize that you need to do an upgrade, but you end up needing to do an upgrade. Like one example of this is, let's say, for example, like you take Rye, right? It's, you know, this stable question. project, they really value governance minimization. And so they're just going to say, we have this fixed formula. We're going to target a price stability with respect to the US dollar with this kind of slightly floating mechanism to it to have an adjustable interest rate. And that's it.

But what happens if, let's say, 20 years from now, the US dollar collapses, right? Like, I mean, this is, I mean, obviously, you know, I tends to be kind of critical of, you know, the Bitcoin maximalist types that say this is definitely going to happen. But also, like, I'm definitely not the type to say that there's a 0% chance this is going to happen. So if the U.S. dollar collapses in 20 years, then, like, Rye holders are not going to want a U.S. dollar, right? Because the U.S. dollar is just going to be something that's going to, you know, increase at a rate of like 10,000 percent one week and then 40,000 percent the next week. And so, like, in order for Rye to continue to be a useful product in that world, it has to basically

make a decision and say, like, no, we're violating our original social contract. instead of targeting the U.S. Oliver, we're going to switch to, you know, either targeting some other national fiat that somehow stay stable or potentially just, like, making their own CBI and targeting that. And in that kind of extreme situation, you know, the governance is going to need to be able to make that kind of decision. So, like, how that could be done is one of those also very challenging questions.

but you know this is the sort of thing that like decentralized governance could be really useful for because especially decentralized governance because it's a sort of thing where if you require lots of different participants to agree in order to make that kind of big step then like you can be confidence that if there really is an emergency that demands that kind of drastic move then it will then it can happen but if there isn't an emergency and someone says like hey guys you should stop targeting the U.S. dollar, you should start targeting, you know, Bob's index Emporium numbers 4255. Then, you know, people, like, he managed us to corrupt a whole bunch of insiders, everyone else is going to go like WTF made and it's not going to happen, right?

So that's, you know, like, that's another good example of where governance can be needed, but, like, decentralized governance specifically could do even a better job than governance said that's controlled by a centralized team because, you know, if the governance is controlled by a centralized team, then the centralized team could, like, even if some feature is intended to be only used in an emergency, well, the centralized team chooses what the emergency is. And so, you know, you don't have that much protection. Every new technology that we invent as humans bring something new to the table. And as we know, blockchains, crypto economic systems are coordination technologies.

They bring new coordination tools and lets us place. with them. So what governance or decentralized governance tools has specifically blockchains like Ethereum actually unlocked for us? Like what are the new mechanisms of governance that we have now that we didn't have before? Hmm. So things that you can do with Ethereum in general, I mean, large scale votes are definitely one thing. There obviously exist other platforms to do large scale votes, but just a large scale of votes where, you know, the outcome is verifiable, where the outcome is actually tightly coupled to the implementation. So you don't have to, like, trust someone to execute the outcome once the outcome gets made. That's, like, a simple thing that, you know, can be done.

You could even, like, use something like Macy as that a project improves over time and make the votes, like privacy preserving and coercion resistant. Other things that you can do, like voting with more advanced kinds of algorithms. like a quadratic voting, a quadratic, pairwise bounded voting and all of these fancy types of voting. Another thing that you can do is, well, actually, one of the nice reasons why blockchains are quadratic voting friendly is that quadratic voting inherently involves like making payments in order to vote.

And blockchain just happen to have a built-in payments platform. Another thing that you can do is other kinds of mechanisms that kind of mix together markets and of democratic approaches. One example of this is retroactive public goods funding that I've been a big fan of recently, right? Like basically, you know, you have a kind of voting-based Dow that funds public goods retroactively,

so after they've already been finished and they've already had some positive impact. And then if you want to use retroactive public goods funding to get grants for something that you want to do, then what you can do is you can create a project token, you can announce that, you know, this project token reflects this, my, like, my attempt to make this particular thing happen. And I'm going to pre-mine some of that token to, like, my team and people that I think are,

like, responsible for making this happen. Obviously, if the team disagrees, then they can kind of fork off and make their own project token. And then I can also sell some of that project token to people who wants, who wants to provide seed funding to this team, right? And then once the project has a positive impact, then the retroactive funding DAO can choose to basically use its funds in order to buy up the project token. And then, like, anyone who participated in building the project and also anyone who bought the project tokens to give seed funding ahead of time,

like, they both end up getting rewarded. So in that case, like, you have a democratic mechanism for funding thing, like, for doing this kind of end-stage retroactive funding, but then you have a market mechanism for a kind of carrying over that end-stage funding into figuring out what things actually need funding in the seed stage. So that kind of mixing of market mechanisms and voting mechanisms is something that I think blockchains are very uniquely friendly to as well. So, you know, we have a lot of tools. This kind of gets into like some of the solutions that you're proposing toward the end of the article, right? Like different ways to govern some of these applications besides just a simple

coin vote. You talked about the hazards of coin vote. I want to get maybe to the to the to the base layer though here. It's like just with the advent of Bitcoin say and then later Ethereum, I mean they're governed in a similar way. Maybe we would call this ungovernance. Maybe we would call this off-chain governance. I'm not sure. It's interesting because it doesn't really fit in a I don't know that there's a name for it that people would understand. Like, what is blockchain governance? We know what democracies are. We know what, you know, autocracies are and theocracies and all of these things.

We know what shareholder vote is in corporations. But, like, what fundamentally is Bitcoin's governance or Ethereum's governance? What would you call it ungovernance? Would you call it rough consensus, off-chain governance? And what are the characteristics and properties of it? So this is actually the topic of a yet post that I wrote way back in 2012. I think this is the one called Dotes on Blockchain Governance, where I basically talk about how, like, viewing governance as a kind of what I call a decision function and basically some kind of like mathematical function that takes inputs and possibly payments from different participants. And then, like, you know, you have a piece of code that then computes an output and that output is guaranteed to be executed.

Like that doesn't even, this is accurately cover like everything, like what we want out of governance, right? Like, it's, like, the way that governance of these systems ends up working is much more subtle, right? Basically, what happens is that, like, at the bottom layer, you have this system where anyone can run whatever software they want. Normally, people agree with each other, but then if some people really disagree with the majority, they can fork off and they can do their own thing. And forking off is obviously messy and expensive. But if that's the only alternative to accepting some changes that you consider really unacceptable, then, like, people are going to. to do it, right? So that's like the bottom layer. And then the layer above that is, well, let's take that kind of layer zero and let's build coordination mechanisms to ensure that

the nastiest outcomes that layer zero could lead to end up not happening. Right. So let's build mechanisms to ensure that like most of the time when there is possibility of agreement, people do actually end up agreeing instead of like resorting to their, you know, natural right to exercise mutually assured destruction. And that's something that, you know, we do with, like, all sorts of community signaling. There's all core devs votes. There's, you know, informal kind of signaling coin votes. There's kind of implicit votes on GitHub.

There's just conversations. There's all sorts of these mechanisms by which people can kind of gauge, you know, if some proposal is looking like it has broad agreements or looking like it doesn't have brought agreement. So on the blockchains, we have this base layer of italic of like, it's the right to fork. It's the right to opt out, right? That's so important. And the next layer above that is basically this rough consensus idea, all of these different,

you know, signals, social signals that feed into some signal as to whether the community will accept a change or not or whether they'll fork, whether they'll resort to kind of of violence in that bottom layer. I'm curious, even with these two layers, maybe there are other layers you want to describe, too, but are these two layers new for humanity? Is this a new thing that wasn't possible in the analog world? I think to some extent the analog world has this as well, right? So like let's say, you know, take the US as an example.

Like let's say the 2020 election went even crazier than it actually did. And let's say, for example, that, you know, the Supreme Court, you know, the Supreme Court, you know, just decided to make a nine out of nine decision that, well, let's go crazier than 2020. The Supreme Court was given drugs by aliens, that they made a nine out of nine decision that, I don't know, no, no, can we like pick a crazy guy? Like, Kim Jong-un is the president of the United States, is the president of the United States of America, right? like technically you could argue that like you know quote legally the Supreme Court decides what the law is and then plus like I'm not sure exactly on the details of like who technically has to agree but the aliens can drug a couple of other people and they could make them just like decide this like just some incredibly crazy thing and then you know if your model of governance is that it's a decision making function then like hey the law says that like if these people say this then like that's the decision that's to be executed and all the and all of them americans are going to have to have to. to bow down to Kim Jong-Hun now. But, you know, the reality is that if that happens, that, you know, the red and the blue are both going to be on the streets. They'll be on the same side of

the streets. And, you know, they're going to storm all the buildings. And, you know, the people who got drugged by aliens, despite their legal power, are going to find, you know, themselves, you know, hopefully it'll be more polite than literal ropes around their necks, but they're not going to be in a good place. And even the military is, probably like even if you drug the aliens drug the guy at the top of the military like you know they're going to rebel as well right um so it's it's not going to work out well it's a coup it's a revolution you know it's that's what a heart fork is in the real world right right exactly so it's uh like this idea that the like what actually happens in governance never matches what is

formally described uh uh to happen by any kind of like attempt at any kind of like attempt at a kind of math-like description of the legal system. Like, that's something that exists in, I think, lots of contexts today. In other contexts, that's a bit less extreme and less violent language. Like, you know, who decides whether or not the word literally can mean metaphorically? Perpen Dictionary. Right. Or if I, like, if I start using the, like, I don't know, the word ammant for am not.

Like, that's something I was taught I should not be doing in school. but I don't know. Like, I personally am really the type to care about such things. So if I start using the word, and if a bunch of other people like the word, then like, it's what? It becomes part of English. So there definitely are lots of rough consensus,

like, based constructs in just all sort of, in society in all sorts of places as well. I think where blockchains are interesting is that they, they seem to occupy this sort of, niche that's maybe somewhere in between how, like, say, national governments work and where and how something like language works, right? Like, I think corporations, they tend to be closer to following the decision function of view of governance because, like, you can't make a revolution because, like, ultimately, you know, like people end up suing each other and then the court

accepts, you know, comes up with a judgment and everyone makes the judgment. And that's, like, ultimately kind of the, like, that's ultimately the last resort. But, you know, in the case of, like, of a country, like, that kind of last resort doesn't exist. But, you know, still at the same time, like, you know, there are, like, it's, it's only in these very difficult and extreme cases that this sort of, like, extra legal pressure and, like, can influence the outcome. But in the case of a blockchain, right, like, it's this sort of, like, informal pressure. And, and this sort of, knowledge that like, you know, if you piss the community off, they're going to fork. Like, that's something that has a lot, it definitely has a lot more significance.

But at the same time, the difference between a blockchain and say the English language is that in English language, forking is just trivial, right? Like, like, the three of Laskin just decide that the word amint is like an okay word to use. It's okay with me. Is it okay with you, David? Yeah, I'm a fan. Amit. Okay.

Yeah, well, you should have said I amint an opponent. Yeah. So the, right, and the three of us can do that. And like, anyone else who wants to join can do that. And anyone else who doesn't want to join cannot. And like there is very little kind of like net like social damage that comes as a result. Right. Blockchains are not quite as extreme, but they're sort of in the middle. So they do occupy this interesting space. And I think the facts that they're not quite so extreme does allow them to do important. things that languages can't do, right? Like, walkchains can create, like, maintain rough consensus on, like, valuable assets and on, like, who currently controls valuable assets and who currently has, like, some position with respects to some kind of a valuable asset. And that's not really something that a language can do. But so, yeah, like, so in some sense, like, blockchain are both a different combination of existing ingredients, but they're also, but they are also something that's genuinely new and offers new possibilities.

Yeah, it's super fascinating because like forking a blockchain, of course, is a bloodless revolution, if you will. And now, you know, because blockchains are generally open source into technology, it is fairly easy to do, essentially. It's always an option. I think that might be part of the solutions you get to as well. It's like making these things easier to fork. But I want to ask about this because so we have this ungovernance, we have this off, you know, rough consensus sort of mechanism. at the layer ones of blockchains. And that feels like a good mechanism to use at layer one.

But maybe you could comment on that. Why is kind of ungovernance the right to fork a good mechanism for layer one? And then why does it feel like it's just not a good mechanism for many of our defy apps? Like it feels like we need some more significant governance for something like MakerDAO. Maybe not Rye, but like for MakerDAO, there's some decisions to be made that can't be achieved by rough consensus. feels like we need token vote. So can you talk about that? I think the difference there is actually pretty similar to what I just one of the examples they gave a couple of minutes ago, which was like corporations versus governments, right? Like in a corporation, if there is a dispute,

at the end of the day, there is this, like, you know, there is a legal process and ultimately people can see each other and there is this kind of court system as a layer one that you can appeal to. Whereas in the case of a government, like if there is a disagreement about the law itself, then, you know, well, ultimately, yet it goes down to some of these kind of more raw and chaotic kind of extremities that we were discussing. So in the, like, basically the facts that applications, like, like corporations in a nation state, like there are a layer two that sets on top of a layer one, like means that. And also the facts that they control external assets, right? like MakerDAO controls ETH, right? And so the problem is that if you try to just make a revolution inside of MakerDAO and fork

the thing that the community like accepts as the legitimate MakerDAO, then the problem that you get is that, well, even if you, you know, you have this community agreement that the new fork is, you know, is the legitimate makerdale. Well, guess what? Who controls the ETH ultimately is dependent on like what the code of the smart contract says? And so like you better hope that the code of the smart contract is, damn good at actually reflecting what the community's values are. And like, that's a hard problem.

And in that case, like, that's the problem that you actually do have to go and solve, right? Whereas, like, if a layer one does on-chain governance and the on-chain governance screws up, well, you know, you can still do a fork to get around that on-chain governance. Whereas with the layer two, like, yeah, if the layer two gets, or if the application gets hacked, then, you know, the application is screwed. if you can't fork the application even in that case. But you can sometimes. So, like, for example, one of my examples was, like, if ENS gets hacked, right, then, well,

okay, like, maybe there's money inside of ENS that would get stolen, but, like, people, like, everyone who currently pays, uses the ENS system, they would just download updates to their software that start pointing to a fork of ENS. And so that situation would resolve itself pretty peacefully, right? So the question is, like, is the app, does it? the application control internal assets or doesn't control a kind of externally defined assets, right? And like a corporation inside a nation state, like if the only thing the corporation controls is the corporation's own shares, then like theoretically don't even need a legal system. Because like if there's a dispute, then, you know, you can fork the corporation and the fork would have new shares.

But corporations, they usually own like nation state defined dollars, the nation state defined office space, nation state defined. intellectual property, ICAN defines domain names, right? Like corporations own kind of external capital in the same way that applications on Ethereum often own external capital. And whenever something owns external capital, then like you can't resolve governance with a purely internal forking system. And so you do need a, you know, quote one chain or kind of like codified governance of some kind. When you shop for plane tickets, you probably use kayak, Expedia, or Google to compare ticket

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So we've gone and talked about what parts of a tech stack need, what kind of governance. So, you know, layer ones have rough off-chain governance, but when we talk about applications on the layer ones, That's when we have a wider array of possible governance strategies. We've also talked about why we need to have governance in the first place and why we can't just completely strip away all governance. Sometimes things happen that needs to be updated. And as we've been circling around, we're coming to this point of conversation is to, okay, we have a bunch of things in DeFi on Ethereum that do need to have governance. And they are generally all just using coin votes for governance. but you are advocating that there's more, more diverse and more rich possibilities that we can get into to have better governance.

But let's talk about why coin voting sucks. What options do people have in Defi that kind of taints or ruins the power of coin voting? Right. So the thing that coin voting really relies on for kind of the philosophical arguments for why it makes sense is this idea that it couples economic interests and governance power, right? Like, coin voting governance is supposed to work because the people with the coins have the votes. And so the people who have economic interest in the protocol success are the ones that have the governance power to make the success happen.

The problem is that financialization is extremely good at separating out, like, different parts of an asset if the people in that asset want them to be separated. And like most people, like because each individual person only has such a tiny and insignificant share of the governance power, most people do not value their governance power that highly, right? Like even if there aren't any attackers, it's very hard to get people to be willing to vote at all. Like voter participation rates in most coin voting systems are tiny. And then if there is the ability to just kind of like split up your token that has the built the economic interest and the governance power and say like there's going to be token A that has just the economic. interest in token B that has just the governance to power, and then you can go, like, rent out your token B and keep your token A.

Like, that's a deal that a lot of people are going to find attractive, right? And financial systems are just inherently about doing this kind of unbundling. And so, you know, of course, there's going to be lots of different ways to do that kind of unbundling. In my post, I talked about two specific ways to do the unbundling, right? Like, one specific ways you just have a smart contract where, like, it's basically a wrapper token, right? Like, the same way, you know, you wrap your ear.

Ethan, you have Weft, you can wrap your maker and you have wrapped maker, except this rapt maker has this very specific property that, well, it's now the raft maker contract that controls the, that kind of technically owns your maker, it has the rights to do governance with the maker. And so the wrapped maker contract is just going to like auction off like every single vote. And let's say it's going to give half the auction revenue to whoever wrote this wrapper contract and half the auction revenue to you. right and so you know every maker holder that is going to like individually find it in their interest to

just stick their maker into the raft maker contract because it pays interest but actually like well it's concentrating all their governance power kind of collectively in the hands of a few potentially unaligned actors right so that's method one um sometimes people find method one unrealistic because it work it just requires token holders to do something that's just feels so blatantly unethical um but that like, which is fair, right? Like, I think like even if token holders are, like, even if the amount, like, they are suffering from this kind of tragedy of the common problem where they have the ability to sell their governance rights to the highest bidder, like a lot of them, they do

kind of like feel this altruistic concern for MakerDAO as a whole. They don't want to feel like they're, you know, part of this exciting community and they're not selling them out. And so, like, you know, they might not want to stick their maker into the system. Also, sometimes, like, if people stick their maker tokens into this rap maker contract, well, other people might analyze the blockchain and figure out who they are, and then they're going to have social consequences and all of these things, right? So you might argue that for these reasons, like this kind of super blatant bribing attack is unrealistic. But then there's also a much more subtle governance attack, right? And the much more subtle attack basically says, well, let's just use a defy lending protocols, right?

Let's say I have some maker tokens, then one thing I could do is I could use my maker tokens and I could lend out some of my maker tokens and it could get paid interest. And then if I am an attacker who wants to participate in sub-governance decisions, then what I'm going to do is I'm going to take a whole pile of ETH and they're going to stick that ETH into a CDP. And then I'm going to borrow some maker and I'm going to use my borrowed maker to have to do whatever governance things I want to do. Now, if you analyze that situation, right, the person who borrows the maker, they don't actually have an economic interest in maker because whatever the price of maker is, they're going to have to pay it back, right? So the person who is borrowing

the maker, they have governance power, they do not have economic interest, and then the person who is lending them the maker, the person who actually stuck the maker into the defy lending system and is getting interest rates off of that, they still have the economic interest because he still have the right to eventually get that maker back, but they do not have the governance power because at that particular time, that maker is in someone else's hands. So one person has governance rights but not economic interest, the other person has economic interest by not governance power. And so even though it does not look like a bribe, the practical consequences are exactly the same as they are in the raft maker bribing contract case. And that's just decentralized bribing.

There's also, like, examples of centralized kind of de facto bribing that already happens. Like, one example is that lots of people store their coins on exchanges. And if you store your coin on an exchange, like, that exchange offers you personally a bribe in the form of services and the form of convenience and in the form of, like, fast ability to trade and all of those things. But then the exchange, like, has formal control over your tokens. And the exchange can, like, basically controls the governance power. You have the economic interest, the exchange has the governance power.

And now, a lot of the time, exchanges say, oh, we're going to be nice and we're going to not either not participate in governance or we're going to run internal polls among our users. And so we're going to kind of pass through the governance power. But sometimes exchanges do exercise it. I talk about the Tron steam situation where Justin's son ended up, like, basically making his final attack by cooperating with exchanges and using coins that people had. inside of exchanges in order to vote. So these kinds of things do actually happen, right? So basically, like, the conclusion is that, like, once, because of just all of these different forms of, like, financialization and, like, just the defy and C-Fi being really

good at unbundling, like, you just have, you end, even though the system is supposed to bundle governance, power, and economic address, it ends up, it can easily end up not bundling those two things anymore. And once it stops bundling those two things, then. Like, basically, governance just becomes an auction and every decision gets sold to the highest bidder. And, like, that can start looking ugly very quickly. Kind of sounds like how Congress maybe works to the skeptic. I'm not sure.

But, like, so there are these issues, but, like, also there are issues, I think people see every day, like, whales kind of controlling the vote in many of these systems. And maybe you'd argue that's a good thing because they have the most economic incentive. but there are cases where, like, you know, I don't know all the particulars, but like, let's say there's a raid on uniswap, right? And this, you know, occluding set of actors rewards, you know, with nepotism, their friends or their family, and they award these people a specific uniswap grant, for instance, rather than another set of people. So there are issues like that, too. I'm curious, Fatalik, though, like, where do we go from here? So we have, it seems like, these two governance forms that are active and working in blockchains. And that is the rough consensus, you know, ability to fork.

And then we have, for everything else, really, all the app layer that's built on cryptocurrencies and on Ethereum, it's all token vote. But like, where do we go from here? You mentioned a couple of solutions. There are a few more. Maybe we should cover. Like, is there a way to do some sort of one person, one vote? proof of participation? Do we need decentralized identity first?

What are some of the solutions that the community should pursue? So I think before I get the solutions, actually, I wanted to comments on the whale thing a bit because the whales are an interesting double-edged sword, right? One of the points that I make in the article is that I think the reason why despite all of this economic theory that says that coin voting governance should break, coin voting governance mostly has not broken so far, is because in practice, the token holdings of a lot of those projects are very centralized. And like, if more than half the supply is controlled by 10 people and the 10 people know each other, then like each of those 10 people is not going to go betray everyone else by sticking their

maker into a raft maker contract and collecting 1% interest, right? There's off-chain reputation at stake. Yeah, exactly. And those off-chain reputation effects are strong precisely because there is, there are these kind of whale boys clubs that control a large portion of the supply of these systems, right? So you have this effect where the systems are like secure from being outright attacked in part precisely because of the centralization.

But at the same time, like the centralization is something that has genuine risks, right? Like one example might be like, you know, what if there is some decision in the future to like stick mandatory KYC into one of these applications? And the whales end up being in favor of it because, you know, the whales have close connection to, say, CFI interests that wants to be friendly with whoever those regulators are or whales. They care about, you know, institutional adoption and the institutions, like, they want a system where, you know, kind of quote, unidentified actors can't participate and all that. And so, you could easily have a small group of whales that will,

want decisions to go in that one direction of just except like throwing in mandatory KYC to just use the platform. But while that's something that the rest of the community does not want. And so there are like these kinds of real misalignment risks

from kind of coin centralized coin voting or I guess vote coin voting with concentrated coin holdings. And you know, we do want something better. But at the same time, you know, we want something better that's not attackable. So what is that thing that's better and not attackable?

Yeah, tell us. Yeah, so I gave a couple of ideas. One of those is incorporate one person per or one vote per person voting of some kind. So I talk about proof of humanity a lot, right? It's this project where, you know, if you're a human, then you can put up your profile and you can, you basically get essentially an NFT that says like, hey, you are a unique person. And that's something that other applications can then link into and they can say like, hey, like for example, you know, if you are one unique person that you can get up to one unit

of governance power or if you are a unique person, then, you know, you get, like, there is even a UBI token that just like gives some number of UBI coins to every person like per period. or I think it's like, it might even be given continuously. And so you just have like actual sort of formally democratic, like one per person in governance. That's one approach. My concern with one person, one vote, is that one person, one vote fails to distinguish between a kind of different levels of commitment that different people have. And like in any of these systems, like there are people that should have hundreds of times more of voting power than other people because those people like care hundreds of times more, put hundreds of times like bigger chunks of their lives into the

project. And like that's something. that also needs to be recognized, right? Now, coin voting does try to recognize this, but it recognizes it in a way that also ends up empowering whales a lot. One idea that's interesting is, like, you could have quadratic, like, if you use a proof of humanity things, you can have quadratic coin governance, so you can say, you know,

if you have N tokens, then you have square root of N governance power, and that would be an interesting kind of hybrid that gets us the best of both worlds. Now, like, in that kind of situation, you know, to prevent this kind of governance financialization that I talked about, you would need to use like something like Macy or like one of these anti-collusion gadgets to prevent people from like basically, like credibly selling their vote. There are governance power to other people.

But, you know, these are things that are being worked on already, right? Which is great. So that's one idea. Another idea is instead of having governance be done by token holders, you could have governance be done by what I would call badge holders like basically holders of something that is like

some kind of non-transferable token that gets allocated to participants that are kind of decided like somehow like it could be bootstrapped with substantialized set and there could be some mechanism for updating them over time or just somehow selected as being like just

good contributors that provide like important governance input and like that could be used as just like providing kind of an alternative chamber of governance that's like reasonably like both high quality and dedicated to the project and disconnected enough from the token holders that it can provide a check and balance in case like the in case token holder governance just goes in a completely crazy direction. So that's another idea. A third idea is like you can say, well, we're going to have coin governance, but in order to limit the harm that it can do, we're going to try to

limit the power of coin governance in certain ways. And projects do do this to some extent, right? Like, for example, in the uniswap, the coin governance can only do like one thing, which is it can only issue new uni tokens. And like you can basically turn the fee on it, the 0.05% portion of the fee on and off. And in that case, like the good thing is that if the coin governance completely breaks and someone can just fork the token and they could fork uniswap, they can still fork everything. And like it's not that, even until, the fork happens, like Uniswop continues to be useful. The people who put their liquidity shares in, like, they can still take their equity shares out. There's no way for the governance

to steal the liquidity shares. So the power that the governance has is very limited. Another example of limited governance power is that a lot of DeFi projects, they have a time delay before any governance decision takes effect. And that time delay gives people time to, like, move their money out if a project breaks. Now, a lot of the time, these time delays are fairly short. They're like one day or one week. I personally am a big fan of time delays that are much longer. Like, I'm a fan of time delays of at least two months.

Like, basically, you want something that's long enough so that even lazy users who only pay a little bit of attention to the protocol have, like, enough time to discover that, like, hey, there's something crazy happening and they should consider moving out of the project and moving on to a fork. But some of these tradeoffs are like, don't they affect your decision-making? like speed. Yeah, they do. Can't that potentially put a protocol in a uncompetitive position relative to its peers?

They can. I think, but I think in general, like, if something is decentralized at all, then, like, it's not competing on, like, rapid, like, day-to-day scale agility. Like, it's competing on the ability to provide its users' promises of stability. And now, I do think that in early stages, while a product is still rapid, evolving. It makes sense to have shorter time windows, but like I personally am a fan of time windows that potentially are even programmed to increase programmatically. Like maybe the time window should be proportional to a percentage of the time since the project launched. Like after a year,

it's a week, after two years, it's two weeks after three years. It's three weeks or something like that. Basically, I think projects, like there is a need for rapid decision making, especially in early stages. But the rapid, like, the early stages should always be designed with the mindset that eventually the rapid stage is going to end and the project is going to transition into something whose rules are like more focused around giving people stability than being able to, like, adapt really quick way to changes in circumstances in one week instead of six. So, Vitalik, I feel like we've extensively covered this topic of decentralized governance. And it seems like the key message is like, hey, let's not build this entire defy ecosystem,

this entire app layer ecosystem on coin voting. It's brittle. And maybe there are some other mechanisms the community can start experimenting with. Let's not just use coin vote as the shelling point. But I want to pull back another thread that you were talking about earlier when we were talking about the ability of users to opt into software, download their own software. This is something we're kind of seeing, and we see maybe every bull market, this conversation of when transaction fees start to go up because there's demand for block space. Then inevitably,

there come, you know, a number of projects who just say, hey, we can create more block space. We can solve the scalability trilemma. And, you know, this decentralization thing, like maybe it's not so necessary. And maybe it's not even necessary for users to have the ability to run their own nodes. Maybe scalability of transaction speed is more important. You wrote another post called the limits of blockchain scalability that maybe we want to tug on a little bit. But this was like in response to Elon Musk, I think we had triggered this conversation where he's talking about Doge speeds. And he said, ideally, Doge speeds block time by 10x, increases block size by 10x and drops fees 100x, then it wins hands down, right? It's kind of this notion like, hey,

we're coming to crypto and we need more scalability and I've got the solution. We just increase everything by 10x or 100x. Can we have a conversation about the limits of scalability? I think, in fact, that's your post title. But maybe let's start here. Why is it so important for individuals, individual users, to have the ability to run notes. David and I were just in a conversation with a group who were talking about another non-etherian blockchain, and we're having this debate as to whether it indeed is important for individuals to run nodes. They were making the point that it wasn't.

We can get into some of those critiques. But from your perspective, why is it so essential for individuals to have the ability to run non-validating blockchain nodes? So the thing that a blockchain node does, I think non-participating might be better than non-validating, because the thing that the note does is it validates, like in the sense of verifies the every block that's coming in. And it checks that everything in the blockchain actually is happening according to the rules, right? So if, like, Ethereum users all switch to using like clients, for example, then what would happen is that, more than 50% of the consensus participants, the miners or

stake validators could just come together and say, like, hey, you know, we're going to make a change to the rules. Like, we're going to, like, say, throw in a deaf funds that distributes like an extra $5 billion to our friends or we're going to double staking interest rates because we decided that we need that or whatever. And users are going to be at an extreme disadvantage. even being able to rebel against that change because their clients are going to accept the blocks by defaults, right? Because a user does not see that the change was made and that the new blocks are no longer valid according to the old rules because all they see as the headers,

the users are by defaults not going to rejects the new blocks. They're just going to kind of keep humming along as no nothing went wrong. and users are only really going to detect that something happens, like possibly hours into the future, right? Like maybe one community actor is going to make an alert, and then over the course of a couple of hours that a word is spreading the spread over social media, and then a couple of hours later, more people are going to wake up.

And by the time that users understand what's going on and they're really upset about it, Basically, there will have already been like eight hours of blockchain activity that happened, and that, like, there could have been really a lot of really important things that happened there. And, like, well, guess what? There's going to be a large constituencies that are already going to be against reverting the chain. And it would be the onus would be on the users to successfully coordinate reverting the chain, right? The onus would be on the users to make a fork.

And even when the users make a fork, they would be disadvantaged in making a fork because, well, If the blockchain is big, then sinking the blockchain is hard and sinking the blockchain is going to take like a week instead of an hour. And so there's going to be a huge amount of downtime before a fork can start. Basically, the entire game ends up being tilted heavily against users that are trying to rebel against that sort of situation. There's no protection against the elites is how you phrase things in your article. Exactly.

Like, the game is tilted in favor of the elites winning by default. Whereas if you take something like Bitcoin or Ethereum, where you're we do have lots of users running notes. Ethereum, by the way, definitely can be better at this. And a lot of the things like Staelist clients, like, for example, that we're doing, are fundamentally about Ethereum becoming better at this. Like, if you have at least lots of users running notes, then what's going to happen is that if the majority of these stakeholders kind of quietly agree on this protocol change,

and they push the protocol change through, then the, like, by default, the users are just going to see that those blocks are invalid and they're going to ignore them, right? And so when the users wake up, like, what they're going to see is they're going to see that there's one chain and that one chain has like, for some reason, 80% of the stakers from their point of view, just went offline, right? Like, all they see is they see their chain and they see the 20% of stakers or whatever it is that are still staking on that chain. And so they think, okay, well, 80% of a staker is once offline when in reality, of course, 80% of the. stakers are continuing to make their own chain that follows different rules. But the users just by default, they might see some invalid block errors, but like from the user's point of view, it looks extremely close to those 80% just going offline.

Right. And so here, the default is tilted very much in favor of like this cabal that wants to change the rules of losing. And when the cabal loses, then like basically, like, they don't just, they end up in the case of of stake even, like their validators would just all get inactivity leads. They lose a huge amount of money. And for the rest of their users, like their user experience only experiences like a tiny degradation because, well, for like a couple of days instead of having a block every 12 seconds, they're going to have a block every 60 seconds or whatever, right?

And that's something that like, okay, fine, you know, the gas price goes up to 2000 go away for a bit, but like, you know, the chain keeps on running. So it's a sort of situation where like, there, the default is tilted in favor of the regular users and people who oppose the fork not suffering that much, and the people that tried to force the fork through suffering a really huge amount. So the closer we can get to that world, the better, right? And the further away we get from that world the worse. And so in order for that world to exist, though, it needs to not only be positive,

for regular users to run a node, but it needs to be easy enough for regular users to run a node that regular users choose to do it and don't get too lazy, right? Like if the, uh, the note of hard disk space needed for a node is two-thirds of your hard drive, then sure you can technically run it, but you know, realistically, if you want to like have your video games on your, on your laptop as well, then like you're not going to want to run your node. And so you're going to still feel like, eh, you know, whatever. I'm just going to go like, uh, hook up to a light client or hug up doing fewer or whatever. But if, on the other hand, a note only takes up like 10% of your hard drive, then suddenly running a note is a much more reasonable value proposition. So that's the sort of,

the sort of world that we want to live in, right? Like, oh, the world where running a node is something that's both possible for average users, but even something where users, like, can do it even if they're very, even if they're very lazy and they're not that willing to, like, and there are a large amount of inconvenience. And I think it's a world that we can get to. I think, you know, even with Ethereum blocks being as large as they are, like there's been, the guest team has been doing an amazing amount of work on improving client efficiency.

Statelessness could mean that you can have verifying nodes that do not require any hard disk space. State expiry could mean that the hard disk space required for even a state storing node goes down to like 40 gigabytes or something small. You know, eventually you could even, you know, we're going to, you know, we're going to ZK snark the EVM, and so a node can just verify a snark instead of verifying transactions. The node would still have to verify data availability, but we can get to a world where running a node is very easy.

And even today, even without the fancy technology, Ethereum is still much closer toward a world where running a node is easy than basically any other of these kind of block chains that has a large amount of usage. So that's something that we want to preserve and build on. Fetalek, I want to keep on actually parsing this apart, but I want to ask this question from a different frame of reference than what you were just talking about. You talked about how the Ethereum community could be better at running nodes, and that's how

something that you kind of aspire towards as part of this Ethereum community is like we could all be doing this a little bit better. Then there's a relationship between like the culture that we want to have of the people that make up our blockchain with the actual technology that is a part of the blockchain. And so you talked about how like, okay, great, like we have, I have my computer and it has a terabyte of data storage. But I just have my computer. I don't necessarily have a computer that I specifically dedicate for all of its resources to running a node. And so you're talking about making as a values choice for the Ethereum blockchain, you want it to make a reduce the cost

so that the individual user can be enabled to run a node, where we've seen other, like, I would imagine, finance smart chains, which are forks of Ethereum or avalanche, which is a fork of Ethereum, have just juiced up these metrics about running a node to the point where, like, it actually sucks up every computational resource that a computer has. So can you talk about the importance of establishing a culture around running nodes

and what that can do for the security of a blockchain? and as that relates to the hardware requirements? Sure. So the culture of running nodes basically just means that, you know, there just needs to be all of this different kind of infrastructure, development and just like mindsets of users that just running a node is something that happens by defaults, right? And that's the sort of thing that you can have more of and that you can have less of.

So one example of this, for example, like one way that Ethereum can improve is, when the merge happens, right? The merge, one of the things that we have in the proof stake design is a much better light client. And when we have a much better light client, so one of the advantages of this is that it will be possible to just have the like client be inside of your browser, right?

So you could imagine a Metamask-like wallet or hopefully Metamask itself upgrading so that instead of just trusting in Fura for information about the blockchain, like it asks for Merkel branches, and it actually verifies those Merkel branches against the light client. and it checks that, you know, hey, like the, you actually have this light client that's run, that's kind of listening to the blockchain itself and getting the information about what the latest blocks are.

Now, the light client is still not doing full validation. So it's still vulnerable to a 51% attack. But at the same time, it's still much better than, you know, being vulnerable to an inferior attack, right? So that's one of the, like, that's one example of a way that Ethereum can improve. and I'm hoping will improve after the merge, one of these underrated benefits of the merge, to having some more of a node running culture.

Another example of this, of course, is that if it continues to become easier to just run a node on your local computer, and there's all sorts of these work streams that are trying to make that happen, then that's some, if more people start doing that, then like you could imagine more people just running their own node and then you could you could just have more people, you know, instead of talking to in Fuera, they could just have this, when they access just random Ethereum applications to Rewap 3, look, they would just talk to their own note and their own note would give them information about the blockchain. I think that even offers potentially a bunch of privacy benefits. Like there's potentially even,

even like good reasons for the user to do that, right? But once you have a critical mass of users doing that, then that just makes it much harder for a kind of proof of stake, like validating elites or like pools or mining pools or mining elites to kind of do any kind of like hostile takeover without people's consent. And also like it reduces the decisive power that the like centralized providers have in deciding on like,

like whether or not to adopt a hard fork that like isn't evil, but actually just is controversial. So like the more you have a node writing culture, the more the kind of the layer zero, this kind of final layer of last resort in decision making actually ends up being a genuinely democratic one. So Vitalik, we've had a number of conversations with, I would say maybe a high throughput chain apologists, right? Let's call them that, right? And so this is kind of how they would counter some of the things that you're saying.

right um basically everything you you said would be really nice vitalic if everyone ran their own node but practically they'll say fatalic how many people do you know who actually run their own youth note and now you probably know a lot of course but like for the average person are they actually running their node that like the subtext is hey the the battle is lost right it's too late Ethereum already like relies very heavily on third parties like in if you are an alchemy to power some of its app layer services. So it's kind of like if you can get past having all users have the ability to run their node. And I understand that that would be a nice, I guess, balance of power.

But if you can get past that and realize that it's not practical in the real world, then we could boost up throughput by a heck of a lot. And, you know, is that so bad? And is Ethereum like practically not allowing everyday users to run? a note anyway today. And so why don't we just make that trade-off? Is it kind of a trade-off like, I mean, you've written posts before about, you know, Bitcoiners not being comfortable with weak subjectivity, but Ethereum is, for instance, you know, or is this, is there something even more important about users running their own nose that make this kind of an ironclad trade-off

that change shouldn't make? What's your take here? I think, like, this gets back to the concave versus convex post that we talked about a while ago, right? Like, I, I, I think people seem to keep wanting to tradeoffs to be binary, but they never are, right? They're like in the, like 10 people running Ethereum nodes is better than one person running an Ethereum node. 100 people running Ethereum nodes is better than 10 people running Ethereum nodes. And 10,000 people running Ethereum nodes is better than 100 people running Ethereum nodes. Like, I think there are more and more things that you lose the further and further away you get from Ethereum being a node running culture. So like just some examples of this, right?

is you obviously lose a lot when you move away from Ethereum people running nodes by default. You lose even more when you move away from the ability to run a node as a hobbyist. You lose even more once you start thinking about not just users, but services, like even exchanges, deciding that they're too lazy to run a node. And it's complicated to figure out how to get this $5,000 server working, and they're running like 57 different chains anyway. And once you have services like exchanges of the, themselves making the trade-off to be lazy and go talk to a centralized provider, right?

And then once you start talking about, you know, staking pools, like sharing node infrastructure, like the more centralized you get, like, you know, it's not, it's very much not binary. You either have it or you don't. Like, you either you could have all of it, you can have less of it, you get to have even less of it. And the more and more you lose, the more progressively and more dystopia in the system gets, right? I think like there might have, I'm pretty sure there have even been cases in the wild of like either staking

poles or exchanges or other kinds of major actors like that. I'm just sharing node in node infrastructure or just kind of offloading that to centralized providers, right? And like the more of that you get, then the more of the set of people you have to like, you

have to get on your side to make a hard, a hostile hard fork happen like shrinks from you know, 10,000 to 100 to 10 or potentially even lower. I think I believe actually, even in the case of EOS, I can't, I can't remember exactly, but I remember vaguely hearing about this sort of thing happening, like, remember hearing about this, kind of, like, so, like, basically

running an EOS, though, it took so, so let's take, took a lot of resources. And so even some of the validators, like, even some of the, like, 100 delegates ended up being too lazy and ended up kind of outsourcing their node running to someone else. So, yeah, like, you know, you think that we've given up the fight, but no, like, there's way more fights that we could lose. I recently asked you this on Twitter, and I'd love to dive into the subject even more. And it's becoming very, very in vogue to talk about this subject because we're all kind of realizing that it's here, or at least the beginnings of it. So what in your mind is this metaverse thing?

What is the metaverse? Hmm. I guess, like, it's this general concept, right? That, you know, you have the internet, but then you try to, you're trying to sort of take the internet. to the next level with some kind of greater level of immersiveness, I guess. Now, what that immersiveness is, I think, is still really vague in a lot of people's minds.

To some people, it just means you have really good virtual reality and you have some kind of internet that feels like it's seamlessly integrated with the virtual reality. To some people, it refers to some notion of shared objects and shared state. You can have, like, you know, the magic sword from one game and then you can port it over

and move it to your other game or it can move your entire character. to another like a world and still keep the same skin and the same like other kinds of details. You know, you could even have these kind of virtual environments that all that all talk to each other. Like you're going to have, you know, NFTs that have, that get assigned meaning that gets respected in like multiple people's kind of applications and sort of subun universes. So I think like people use the term for a lot of things and it's still very vague in people's minds, but there is this notion that this sort of interconnectedness is something that people want.

And I think that's a big reason why something like Ethereum is really well-suited to be as a central part of the Metaverse. Because, you know, Ethereum is this environment that's really well-suited for creating these objects where those objects, like, once say you create them, they can then easily be moved around between different applications and they can have, like, value assigned to them or value respected by different platforms. Like one interesting example of this, actually. I guess there was this a loot project that like I think popped up a couple of days ago, right? Like you have these NFTs and every NFT by itself is just like a bit of text, right? It's like, you know, like Wizards Robe of the Tiger and like magic sort of Excaliburness or whatever or whatever. And like, okay, fine, you have NFTs that are a bunch of text. And you have this ecosystem of all sorts of different like applications created by community members where those applications.

those applications then assign meaning. It could be assigning pictures. It could be assigning stats. It could be assigning all sorts of things to these objects, right? And so you have this basically virtual world that not only like, it even goes beyond decentralized land type things where like you just have like a decentralized substrate. You have a virtual world that's here that has collaborated. created laws of physics.

And that's something that seems potentially really powerful, right? Now, what people are going to do with the Metaverse? I don't know yet. I mean, it seems like there's a lot of space for creativity. Like, I definitely see it becoming a really powerful, kind of interesting place to do all kinds of gaming things. What other things people will do? like does it make sense to, you know, have a work meeting inside of the Metaverse as opposed to just like doing it in a Zoom call or whatever, whatever?

I don't know. I think people are still figuring that out. We'll see. You know, are we going to have like social platforms that are like more deeply connected as part of the Metaverse somehow? Like are there going to be conferences and, you know, in the Metaverse and what does that even mean? Like, I think these things are still being figured out. I do think that the Ethereum, like, ecosystem has a big opportunity to be in the middle of this whole transition. So we'll see how that goes.

Well, I was about to bring up Lute next, but you did it for me and took and ran exactly where I wanted to go with this. Right before we hopped on a call with you, I tweeted out, Lute is Ethereum coming full circle because Vitalik originally created Ethereum because of his World of Warcraft items that got nerved by Blizzard. and now we have this metaverse that is actually instantiating the values that you wanted to have loot in your World Warcraft account exists in the first place. And so, like, you said Ethereum has the opportunity to be at the center of this whole thing. And I recently just put out an article on banklets that more or less talked about exactly like this, where Ethereum is an object issuance platform. And that's all it needs to be to offer this skeleton or this structure to allow this metiverse to ascribe meaning. and purpose to the value to the objects that Ethereum has inside of its state.

And so the kind of the, what I'm trying to wrap my head around is like, is Ethereum like this first skeletal structure that allows for the Metaverse to kind of like envelop around it? Yeah. And I think Ethereum's definitely like gone further than anything that we've, that we've seen before. Right. Now, I did in a lot of different ways, right? Like, there's definitely been this kind of this rich object ecosystem in Ethereum. There's been this rich kind of gaming ecosystem in Ethereum. And, you know, with like dark forest, like ZK game and all these other things. But there's been this rich, yeah, and also a financial ecosystem.

That's also a type of object. Like actually seeing these different pieces like start talking to each other. And it'll be very fascinating. But Talek, as we come to a close here, and again, thank you for your time. We want to just kind of check in with the update on Ethereum. Since we last talked roughly three months ago, EIP-1559 has come live with the London hard fork. The beacon chain has launched. This new NFT mania has made Ethereum closer to a household name than it ever has before.

So how would you describe Ethereum in its current state in history? Like, where are we in the course of Ethereum history? Help us find ourselves. Where are we? We're on the finish lines in the merge, right? I think that's the most important thing right now with EIP-159, behind us. Like, there's basically nothing else as like something like right in front of us that was that lots of people are really putting their souls into and focusing on.

And EFB159, I think, in addition to, you know, both correctly proving out the burn and correctly proving that it manages to actually really increase the user experience efficiency of sending transactions. I don't know what experience you've had, but for me, it definitely feels like it's much easier to just send a transaction and get it included in one block. and I don't have to worry about adjusting gas fees anymore. But in addition to all of those things, EAP1-559 also proves to the world that the Ethereum ecosystem really is capable of making big changes

and it's not just vaporware. And I think people are increasingly confidence now that the merge is something that is going to happen too. And it's a big shift. It feels so long ago, but even as little as late as at the beginning of 2020, it was still a common Bitcoin maximalist position that the merge will never happen, right? And, you know, since then, they've obviously moved on to other arguments

and, like, they've even, you know, just embraced the whole, like, you know, oh, proof of stake will happen, but it's bad thing. So, you know, when you make enough progress to force other people to shift their narratives, that's definitely something, a sign that you're doing things right. So that was an answer from, I would say, like, the inside out of Ethereum, focusing on where Ethereum is as a protocol. But what about viewing Ethereum from the outside in? We have government regulators looking at what's going on in Defi, and we have cute penguins working their way into the zoomers, like computers,

that they come home after school. What about from the social level? Where is Ethereum in its acceptance as a social technology? I think it's finally breaking out, and I think it's amazing that it's finally breaking out. The NFT space did a lot, I think, because the NFT, NFT space showed a constituency other than finance people that if you're having, it has something really cool and interesting inside of it, right? Like you have all of these artists that are selling these NFTs.

Gamers are obviously increasingly interested. You have just, you know, this ecosystem of people just doing all sorts of really cool and creative and fun stuff. like ENS is kind of slowly continuing to, you know, make its way forward. Maybe having a bit of a law just because there's high transaction fees and it's expensive to interact with anything. But, you know, once roll-ups come online, which is very soon, I mean, Arbitrum, my understanding is that it still has training wheels, but it did launch a kind of available to everyone

version a couple of days ago. So, like, you know, big congrats to Arbitrum, amazing progress there. And optimism, obviously, you know, they're continuing to run. I think they have about $100,000 a day of transaction fees now. So they made that blog post, right, where they promised to put a large portion of I sequence the revenues into retroactive public goods funding. And, like, we're talking $100,000 a day of retroactive funding, public goods funding. Like, that's bigger than the GICT coin matching pool budget. So roll-ups are increasingly being used.

I think it is definitely, one of the places where I was over-optimistic before is that I thought that, you know, once you had things like loopering and ZKSync, people would just start adopting them immediately for payments. But I think what ended up happening is that we showed that, like, you actually do need the richer kind of fully EVM-capable ecosystem with all sorts of applications on a roll-up for people to, like, really wants to jump onto one en masse. But that's actually happening now. And I think the jumping is happening.

And once that happens, then the fees are going to go down and all of this kind of latent interest in just doing all sorts of like interesting and cool things on Ethereum. I'm like, that's going to really blow up even more. So looking forward to that. Yeah. We talk about packing our bags and going off to the layer two suburbs because it's cheaper to live there. What technologies do you think we will finally be able to unlock now that layer two is here that we wouldn't have been able to use because of the prohibitive computation and fees on the main chain? So, ENS becoming a much bigger deal, something I already mentioned, like even like something like status, for example, like I think high ENS fees are probably one of the biggest barriers

to adoption at this point. And at the same time, like the other barriers to adoption, like how sinking between devices doesn't work well. And like you can't really see people's names squarely yet and all these other things. Like those are things that the team is also actively working on fixing and they have a whole bunch of other awesome features that are in the works. So I expect status old to become considerably more amazing. What's it both integrates lawyer twos and does all these other things.

All of this gaming stuff, obviously, like hopefully ZK game is not going to be on a test net forever. There's basically all of these non-financial applications, attestations, like just like claims being made about different accounts, just much wider. adoption of like pope and proof of humanity and all these other protocols. Just yeah, I mean, the entire non-financial Ethereum ecosystem being able to just be much bigger and be accessible to people who are not like basically already rich from having held Heath for the last few years. Vitalik, Heath just just passed its sixth birthday. So that means we're in the sixth year.

And it's been a pleasure to have you on the podcast, sir. We've gone over so much. but I want to ask you kind of this final question. Each year maybe has had kind of a feeling, a trend, something about it that's new. You know, 2015, there was launch, then there was, you know, Dow, maybe 2016, ICO, 2017. What do you think is the word or phrase or theme for the year 2021 for Ethereum? Hmm. I would say scaling, both in the sense of technical scaling of roll-ups finally.

coming online, also and in the sense of social scaling of communities other than finance caring about Ethereum for the first time. And just Ethereum becoming much more culturally mainstream. And of course, in the sense of kind of the Ethereum's layer one scaling things, not quite happening yet, but definitely like being on a path, getting onto the path where people are increasingly convinced that they're going to happen. So scaling in many ways. Awesome. Vitalik, thank you so much once again for joining us on bankless.

Thank you for having me. Guys, action items today. We have a couple of links for you, two to Vitalik's blog. The first is you've got to check out the article we talked about in the beginning, moving beyond coin voting governance to get some of the details in written form from Vitalik. Also, read the limits to blockchain scalability. We touched on that in the second part. Of course, as always, risks and disclaimers.

ETH is risky, crypto is risky, Defi is risky. You could definitely lose what you put in, but we are headed west. This is the frontier, and we're glad you're with us on the bankless journey. Thanks a lot.