Bankless - SotN#18: ANTICIPATING! w/ Tim Beiko (EIP1559, ETH 2.0, Elections, market crossroads)

Episode Date: October 14, 2020

📣 Join us at Invest Ethereum Conference Oct 14th - http://bankless.cc/investeth $25 off w/ “BANKLESS” code ----- 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 🌐 UNSTOPPABLE DOMAINS - HUMAN READABLE ETHEREUM & CRYPTO ADDRESSES https://bankless.cc/unstoppable 🌈 ZAPPER - ULTIMATE HUB FOR DEFI - ZAP INTO DEFI http://bankless.cc/zapper 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ Tim Beiko (ConsenSys) the chief herder of cats for EIP1559 tells us what EIP1559 is and if it's actually happening anytime soon on Eth1. Topics: - EIP1559 is Ethereum's scarcity engine - What’s the current state of EIP1559? - Is it actually happening? And then... - The 6 things driving the crypto markets right now Links: Ethereum Cat Herders report on EIP1559: https://medium.com/ethereum-cat-herders/eip-1559-community-outreach-report-aa18be0666b5 Checklist for EIP1559 readiness: https://github.com/ethereum/pm/blob/master/Fee%20Market%20Meetings/mainnet-readiness.md Geth managing Ethereum State: https://blog.ethereum.org/2020/07/17/ask-about-geth-snapshot-acceleration/ What's driving the market: https://bankless.substack.com/p/whats-driving-the-market-market-monday Bitcoin's scarcity game: https://bankless.substack.com/p/bitcoins-scarcity-game Five-star reviews to help grow the Nation! ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- 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 we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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wherever. You can just go straight from your bank account right into your monolith checking account smart contract wallet. So check them out at Monolith.xy-Z. Welcome to episode 18 of State of the Nation. We're super excited to have you with us live today if you're watching on YouTube. We've got a special guest, Tim Beko. Of course, it's myself, Ryan, Sean Adams, and David Hoffman, who are hosting the State of the Nation today. So if you're new to State of the Nation, what we do is talk about what's happening, particularly in the previous week, topics that are relevant. related to some of the big picture stuff we talk about in the podcast, we talk about the newsletter,

and then drop some insights and action items. And today is going to be absolutely no different. We're going to be talking about a few things today. The first of which is EIP 1559. If that phrase doesn't make any sense to you, this is really Ether's perpetual scarcity engine, super important to the economics and future of Ethereum. We're going to dive into that, particularly where is it? We've got Tim Baker, who's going to tell us a little bit about the development and progress of that. We're also going to be talking about the things that are driving the market right now, particularly six. And David has that in mind. Before we get to the question I always ask David, a couple of things coming up in the bankless community. So David, Vitalik is coming on next week,

right? We're actually doing a recording with him this week and that episode will be released next week. we're going to talk to Vitalik about. Yeah, and this has a lot to do with what the state of the nation is this week. The Ethereum 2.0, as it has been, is around the corner. But this one seems to, for real this time. For real this time, this time it feels different, right? And especially with the very large amount of new entrance into the defy world, I think, and it's really been like two or three years since the conversation of why ETH II has really been, you know, mainstream. Like really the last time we were, the community was really talking about why proof of stake, you know, why sharding?

Like why do we, why did we choose these things? I think it's a time to revisit those choices, revisit those design choices. And so we're bringing Vitalik onto the bankless pod to rehash some of the age-old conversations as to why proof of stake is important. You know, why are we doing sharding instead of something else? So this is going to be a great episode. Yeah, that's going to be awesome. Vitalik is I personally listen to every single interview or thing that Metallic puts out.

So this will be fantastic. We also have a token report that is dropping this week. We only do one of these per quarter. And I was looking at some of the graphs from last quarter. And the growth in Defi was like absolutely insane. I feel like that's downplaying. It was just mind-boggling. So we're coming out with that on Thursday.

different than previous cues. Let's say that. Oh my God. Q3 eats all the other cues for breakfast, man. It is just a killer quarter for D-Fi. And you'll see that in the numbers that Lucas is putting together. So catch that on the bank list newsletter. If you're not signed up, there's a link in the show notes to that.

David, we're also doing a new roll-up round later this week on the YouTube channel. Another reason to subscribe. What's the roll-up round, David? Yeah. So we were trying to figure out where do we fit news. and in current events that happen on a weekly basis in the bankless program, right? And so we're creating a new show called Roll Ups Round. This show is going to be very short and succinct, so 30 minutes, let me call that short. And, you know, in the light of things that move quickly and go fast,

roll-ups, so we're calling it Roll Up Round. And this is where we go through some of the same questions every single week, such as what's in the news, Ryan, what's on your mind, what are you looking forward to? And so it's kind of a way to keep in touch and really a nice, in a nicely packed and it's roll up, which is why we call it the roll-up round. This will be very well packaged. So this is one of those episodes. It's not like the podcast where like podcasts could get in 90 minutes and you're like, what?

David and Ryan are still talking. But like roll-up rounds, they're going to be, we promise, 30-minute range. And it'll be like a 30-minute bite-sized content for you to get the latest information. Lastly, David, tomorrow, I'm super excited about this. It's the Invest Ethereum conference. And you're actually going to be speaking in that. there's like one day left, right? So only one day left to grab tickets.

So only one day left to grab tickets. So what should folks do? Yeah, there is a code in the show notes called bankless. That's what it is. And there's also a link in the show notes where you can use that code to get $25 off of your ticket. And what I'm going to be talking about is ether, the triple point asset, right? And so you guys all know this thesis, but it's been over a year since I've really given it

as a talk. And that was to an Ethereum native event, right? Run thrown by consensus. This is CoinDest, so this is different. Different audience, like wants to tune into something, you know, not so like utopic that the Ethereum community is used to giving. So I'm excited to give this thesis out to a different audience. Yeah, and I'm also excited that CoinDesk is throwing an Ethereum event. It feels like the first of its kind.

And I bet as this is successful, there will be, be many more. All right, David, let's get to our first order of business. I'm going to ask you the question I always do. What is the state of the nation this week? The state of the nation is anticipating. We are anticipating. And this has, and like I'll say the nations, this has many different meanings and places where it's relevant. One thing we are anticipating is EIP 1559. That is the main subject of today's state of the nation. Another thing that we're anticipating is the rollout of Ethereum 2.0 as the test net continues to chug along. But in addition to what's going on in Ethereum, there's also the elections in front of us, right? There's also fears of COVID.

What's going to have, is there a third wave or is just the second wave kind of like hanging on too long? Is the vaccination real? There's a lot of things that the world seems to be anticipating. Another one is, is how many more public companies are going to put Bitcoin on the balance sheet? a lot of things anticipated around that. So as a nation, we are anticipating. Do you think, David, this skews like more nervous anticipation or like more optimistic anticipation? Yeah, I mean, I am a permable. So take that into account. So I'm on the optimistic anticipation side of things. But there are plenty of reasons to hedge that optimism. So we will get into those in the second half of the show.

Very cool. All right. Well, let's get into our first order. of business. And to do that, I want to introduce you to Tim Beko. He is a product manager on the consensus protocol team specifically focusing on their MayNet Bay Zoo client. Tim, if you're there, welcome to the nation. It is fantastic to have you, sir. Hey, guys. Thanks, Todd for having me. Welcome to. Hey, Tim. I love that background, dude. That is just killer. Thanks. Nicely done. All right. You know what? We want to talk to you about EIP 1559. And first let me say, we have really appreciated it.

And when I say we, I'm talking like myself, of course, and David, I think I speak for him, but also the entire bankless nation, very supportive of EIP 1559. And specifically, the work you're doing to kind of herd the cats on that initiative and to sort of manage the project and also to communicate updates to the community. I feel like if anybody wants an EIP 1559 update, what's the latest? You are a fantastic source for that on Twitter and other places. So first of all, thank you very much. Like, seriously, thank you very much.

We really appreciate the work you're doing. That's great to hear. And yeah, there should be another update out later this week. So I'll be sharing that as I get it done. More updates are better, my friend. All right. So as we get in, we're, of course, people on the bankless journey are very familiar with EIP 1559. We've written articles about it. We talk about it often all of the time. But maybe for folks that aren't as familiar with it, Tim, could you give like your word, in your words, just a quick explanation of what EIP 1559 is? Sure. It can be hard to explain very quickly because it touches a lot of the parts in the theorem.

But one way I think about it personally is it changes our fee markets to trade off volatility in fees for volatility in block size. So right now, all of the Ethereum blocks are, you know, they have a max size and they're mostly fulls. They're mostly always the same size. And we get a lot of variance in fees because the way we decide which transactions to include is through a first price auction. And that leads to a lot of inefficiencies. so people basically overpaying because they have to pay the highest possible price to get in the block. So what 1559 does is it proposes instead we'll stretch our blocks to twice their current size, but only keep them half full on average.

And the way you keep them half full on average is you set a minimum fee for a transaction to be included in that block. And if there's more transactions that want to be included, you raise that fee. If there's less, you lower it. So you kind of smooth it out the volatility of transaction fees. But in I guess in response to that, you get blocks which might vary in size more than they do today. And another part of 1559 that's noteworthy is that in order to security set that minimum fee, you want a way for which miners are agnostic to it.

Because otherwise they would choose for that fee to be as high as possible all of the time. So what we do in that case is we burn the fee. So the minimum fee need to be included in a block. that part of the transaction fee gets burnt. And that leads to 1559 having this nice property of when more and more people want to use Ethereum, there's more demand for block space. The fee that gets burned goes up for each transaction. And burnt means no one gets it.

It's just gone completely from circulation. Exactly. So Tim, when Eric Connor first introduced this EIP, he presented it as a way to make transactions on Ethereum easier, right? We can kind of obfuscate gas. because of the EIP. And that was kind of like, it seemed to be the main incentive towards getting it included into Ethereum.

It's just going to be a quality of life update for transactors and wallets, right? And that's also fantastic. That's something that we absolutely need. But then people like me and Ryan figured out that this is actually a different mechanism in addition to that that burns ether, right? And, you know, me and Ryan are always kind of totally focused on ether, the asset, and the way that it relates to Ethereum. And so this changing of Ether's monetary system was a big deal for us.

And so we started kind of branding it as like what Ryan called as Ether's scarcity engine, right, on Ethereum, which is totally separate from the usability feature of EIP-1559. And what you just explained is that EIP-1559 changes fee volatility for block-sized volatility. So everyone is kind of seeing something different in EIP. 1559. How do you kind of coalesce all of these different things into one definition? And if there was a simple or easy way to explain, what is the goal of EIP 1559, have you thought about that? Yeah, I think about it a lot. I think that's like the best and worst thing about 1559. So the fact that it's, you know, multifaceted means a lot of people support it. So obviously kind of the ether

investor community, as you said, are kind of excited about the fact that it burns ether. The Ux motivation, I think, are really good as well because it goes from Ethereum being a network that's always full that you have to wait to use to a network where like next block inclusion is the default rather than the exception. And that has a ton of nice UX properties, both for transactions on chain being included quicker, obviously, but also for layer two solutions that need to post commitments and whatnot on chain. their operation much smoother. So it is like this pretty big UX improvement. I work on a client team, so I tend to take a very client-centric approach, and this is where the sort of blocks-sized

volatility bit is very relevant to us. And like you mentioned, the economic parts are also interesting. And it's very hard to concisely describe 1529. I think you're not. I think you kind of have to go with your audience and, you know, start with the angle they're most familiar with. And slowly, you kind of build up the rest. But like I said, I guess this is what gives it a lot of the support in the community. So that's good. It's also what makes it very hard to analyze into reason about, which is worse, you know, because you're optimizing for two to three things at the same time rather than one.

So it can make it sometimes harder to just communicate exactly, oh, we're doing this for this reason and this thing will be better. Yeah. And I think that offers a pretty good rationale for, like, you know, why EIP 1559, even though it does seem to have completely unanimous community support seems to be getting out the door relatively slow. And, you know, mainly it's because it's such a comprehensive change to the core way of a blockchain function. So it's a big deal in of itself, but it also impacts so many different groups of people in specific different ways. So we

need to have each individual stakeholder and how they are impacted differently accounted for in this change. Yeah, absolutely. And I think, yeah, it is at least as I'm aware, probably the largest change. We've done on EF1 through like a single EEP. And as we're working through this change, we're talking, you know, we're talking with stakeholders last week. We put out a report that a couple of folks from the CAFHROTERS that myself worked on where we interviewed 25 projects. We're still looking to talk to more of them to basically get all their concerns about the EAP and try to understand stuff like, you know, how should we support legacy transactions?

How much time do they need to implement eP support? What do they need from us to do that as smoothly as possible and whatnot? And we've already started doing things based on that report. So we had conversations before about whether we should just convert legacy transactions to 1559 transactions and keep them both kind of forever and still burn the base fee on legacy transactions. And it seems like that's an approach that will work for, basically all projects. So it was good to be able to confirm that. Just last week, we had the implementers call where we were discussing more at the client level, how do we deal with sorting

the transactions as we propagate them over the network, because now this base fee component is something new that we're introducing. So we just need to make sure that, you know, everything from like the clients, the smart contracts to the UIs for those smart contracts, kind of can work with 1559 and are aware of the fact that it's happening and what it implies for them. You know, David earlier mentioned that there was some unanimous, there was unanimous support in the community, and I certainly see that from the investor community. But if you kind of broaden it out, one of the interesting things, you brought up the report, Tim, that you guys put out with the cat herder in that interview, I think there was questions

to like 25 different projects, some of which were on-chain. applications, wallets, exchanges, minors, no investors, but I guess the assumption is investors are like full steam ahead guys. But there's no technical change. Sorry, yeah, the other thing too is the report was focused on like changes, projects needs to do, you know, investors, you'll buy or sell ether, but you don't need to, you know, do much more than that. Exactly.

Okay. So, but, but I guess one takeaway was that EIP 1559 does not. have completely unanimous support across all stakeholder groups. At least that was sort of one takeaway I read from the article. For the detractors or people who are, I guess, a little more bearish on 1559, why? So I guess there's two groups of people that were against. The first, miners were strongly against. I think, yeah, I think we talked to eight or nine of them and all of them minus one were against and the one that was not against was neutral. So, you know, I don't think there was positive thing.

There's a couple of reasons there. I think the first being obvious is the part of the transaction fee that's burnt directly goes, you know, away from their income. So there were risks that if, you know, a large part of transaction fees are burnt, then smaller miners become less profitable, at least some more centralization of mining. So I think that was one big category of risk. There's also some concerns about potential attacks on the mining side and miners saying that, yeah, there would be better ways to do collusion under 1559, although that hasn't been proven in any, like, extensive description that I'm aware of. And finally, a lot of miners were supportive of it, but would like to see it just like on E2Dalo, so kind of farther out.

So that's, you know, that's one big group. I think it's a whole kind of can of worms, you know, how miners should be considered in the ecosystem and whatnot. You know, I have opinions on that, but I think, you know, it's the community's job to decide if and how they want to, you know, take that into account. There was another, I guess, category of people who were opposed, who are not necessarily minors, who I think that the two biggest pushbacks that they had, on the EAP where that it was this very complex change that doesn't have like a formal specification highlighting, you know, this is all the impacts that it's gonna have and these are all kind of the second order impacts

that this will have. And that makes it harder to refute the EAPs because you can't just point to this statement and say, actually this is wrong because we don't have this kind of exhaustive description. There's some work that's being done on it. So Tim Rothgarten, who's like a leading, game theory and computer science professor is working on an analysis comparing 1559 to our current fee market.

So that should help inform a lot of that. There's a lot of, I guess, intuition behind it. And Vitalik just put out some slides yesterday or today, I believe, giving some more of that. But I think there's not like a, there is a technical specification, but we don't have a clear economic specification. And that's something that some people would like to see before they feel confident, you know, moving. of Ethereum for this new system. And I think that was really kind of the biggest objective. There were a lot of smaller objections, but I think if I had to put like a mellow one,

it's just the fact that there's not this solid economic spec in a way that people can point to and then argue. I guess on the first, just with the miners, you know, a serious question, Tim. Do you think it's important for us to listen to hear what miners said? Like if you ask anybody, right, who's making money on something, hey, we're going to make a proposal. Let's say the U.S. healthcare system. We're going to make a proposal that cuts revenue to the U.S. health care system, right? Like, they're going to oppose that, right?

Like, naturally. But it still might be better for the system as a whole to, you know, increase efficiency in the United States health care system or implement some other mechanism, right? But it's obviously politically they're going to oppose it. But I guess my question is, why should the opinion of minors actually matter for something like EIP 1559? So I think, you know, at the very least, we need miners to run the chain. And so if they are so opposed to it that, you know, they will not upgrade, then that it will become a contentious upgrade. And I personally would like to avoid that. it'll be much harder to get it through.

I think, you know, and it's worth asking minors if there's changes that they would like to see, obviously aside from like not burning the base fee at all or stuff like that, that would make it easier. I haven't heard back like any kind of, you know, proper proposals or specific things that they'd like to see changed. And it's also worth knowing, like, I guess we don't have good data on how much of the fee will actually be burned. Because when we say 1559 burn fees, it burns the base fee. but there's two parameters in the fee under 1559. There's a base fee and a minor tip. And we need to have this minor tip

because otherwise miners can just mine empty blocks, right? They won't have any incentive to hold the states to run transactions and whatnot. So in theory, like the minor tip just has to be, just has to make it slightly profitable for miners to hold the state and to execute transactions and there will be some minor incentive to do it. In practice, though, I think with DFI,

you'll probably see, a lot of transactions with a fairly high tip because the opportunity cost of not being in the next block is so high that it's worth way overpaying on your tip to you. So that's still part of the revenue that the miners will get. And if you look at fees on chain historically, basically aside from like ICOs and defy, fees were always very, very small relative to the block reward. So I don't have the latest numbers, but like for a very long time in Ethereum history, Fees were like 95% of the total minor income and, sorry, fees were 5% and the block reward was 95%. Whereas now recently we've switched where oftentimes the fees are bigger than the block reward.

And so miners will still be getting part of that increase because a lot of that increase is driven by people who absolutely need to be in the next block. And the question is how much. So if people, I guess, like who understand this data or have, you know, good hypotheses about how it would evolve, could kind of communicate that and share it up. I think it's one thing that could help with miners if we were able to say, hey, we suspect, you know, I don't know, between X and Y percent of your income will probably disappear due to the base fee, but between Y and Z of the fees will probably still, would probably still go to the miners because of, you know, these on-chain transactions.

I think that would maybe help just like have a better conversation with them. But yeah, I guess at the end of the day, we do mean minors to mine the chain. and if they're extremely opposed to it and no other miner will step up the mine in their place, it'll just make the upgrade much more complicated than it has to be. I got it. And miners certainly have been doing fairly well these days with transaction fees. They have been, it's not an exaggeration to say, raking in the revenue from Ethereum in unexpected ways. Yeah, so I take your point, although I will say hopefully game theoretically, as long as there is any revenue to be made from Ethereum, some miner is going to step up.

Heck, David and I will start running GPUs in our office if other miners do not want to do that. But let's address the second, I guess, objection pool that you mentioned. And that's the folks saying that, hey, EIP 1559 is too complex. We need more modeling. We need to understand everything it's going to touch. I've heard a counter objection to that that just says, hey, basically, guys, you can model all you want, but it's kind of like COVID and coronavirus, right? Like you don't actually know what's going to happen until it's out there doing something.

And then it turns out all of your models are going to be wrong anyway. So there comes a point in time where you just have to say, hey, like, we've done the best that we can. And we just have to test it in the real world. So you mentioned Vitalik slides, and I'm going to pull those up here, but maybe you can kind of weigh in on that counterpoint to just say, like, hey, the only way we're going to actually test this thing is in the real world. So we may as well get started in the real world. Yeah. And to be clear, those are not mutually exclusive.

Right now, we're doing both in parallel. So as we're waiting for this economic model, we're taking the spec as is. And we already have 1559 test net running between us, Nethermind and the volcanized team who's building on Geph. So we've been using that as a way to just, A, like, debug the spec, make sure that we can actually. implement this and different clients can agree on it. B find Bolo necks from an engineering side. Like I mentioned earlier, how do we actually deal with legacy transactions? What's the best way to do that?

So we're able to do that work and build up gradually more complex test nets that give us real world data, which even at some point we can have bug bounties on and whatnot. And in parallel, we can do this simulation and R&D work to try and lay out kind of the the more formal analysis of 1559. So on that side, I mentioned earlier, Tim Rothkarton is doing like a proper economic review. But Barnaby, who's a researcher at the EF, has been doing kind of an in-between approach

where he's running a lot of simulations in Python notebooks about different types of agents using 1559, what the equilibriums would converge to and whatnot. So I think for a change like this, you basically want to have all of that data, we probably won't know exactly what happens to it until it goes on mainnet, but hopefully we can reduce most of the biggest risks. And a lot of people talk about having 1559 on Ethereum 2.0 as well.

And I think this is also a chance we have to try 1559 out on Ethereum 1, make sure that it works. But then if there's other secondary benefits we want from it, We can then have those on E2 and at least had a first run of it on our current chain. Tim, I'm just skimming these slides from Fitalic. And, you know, hey, Vitalik's a pretty smart guy, right? And these slides actually look simple enough that I could probably understand them. Was there anything new that he put together in these slides?

Or is it just sort of a summary and a restatement and a simplification of NAPD-505? Yeah, it definitely is like a summary and a restatement. And the first couple slides she came over again, you know, some of the economic intuition around like why we want that. And yeah, I find those slides are pretty good. Yeah, to send to somebody who like, you know, is pretty familiar with Ethereum, obviously, but maybe not so familiar with 50s if not at a high level. This is probably a good intro. Very good. We will include those in the show notes then.

Yeah. So, Tim, we've been dancing around a number of different subjects. and a lot of it has to do with modeling. Is that where we are currently with EIP-1559? Or what are like the next steps that we need to overcome to get this thing closer to getting shipped? Yeah. So I actually have a checklist that I've shared publicly.

It's called Mainnet Readiness Checklist. That list basically all the things we probably need to do to get 1559 live. I can share it in the Zoom chat here. I don't know if you'll be able to then share it on your screen. screen. But this gives like a good idea of like what we'd like to see before EIP 1559 moves through kind of business as usual on the Cordelps side. And, you know, to skim over it quickly, obviously we need every single client to implement it. Right now, the three teams that are working on it are us with Basu, the Nettermind team, and then the Get client is being worked on by Vulcanize. So this is fine for now. Eventually, open Ethereum and TurboGetz will need to implement. it, but they don't need to implement every single version of the spec, right?

They can just wait till the three of us come up with something final and implement that. So that's fine. In terms of just like the client work, you can see here we've already solved a couple issues in the past few weeks. There's a few more things we need to figure out. The biggest one is kind of outside of the scope of 1559, but is the denial of service risk on Ethereum main net. So this gets pretty technical, pretty quick, but there's ways that you can exploit how some up codes on Ethereum are priced in terms of gas relative to the time it takes for them to run on a computer.

And so if you just call the up codes that are kind of underpriced relative to their execution times, a bunch of times, you can slow the network down potentially. And 1559, because we have blocks that can go twice as big as our current blocks, any attack like that would be twice as worse on main. And that's when we brought the EIP up on the Kordev's call twice, this is really the number one main objections. And the way it's being fixed is not directly in the E. So Gett has been working on snapshot sync, which is a similar approach to what TurboGET is doing. And on BASU, we also have an approach like that, which allows you to store the state in a way that's more efficient to query and that deals with a lot of these attacks. And in parallel to that, there's another EIP called 2929 that raises the gas costs of some of these upcodes that are underpriced relative to their computation. So we definitely need to see those changes go live on Mainnet before 1559 is deployed.

I don't think it slows us down because 1559 is not in the next upgrade that's scheduled already. It'll probably be in the one after that. And I think those things will be deployed by then. But this is really, I would say, at the client level, the number one risk. Like if we don't fix those things, we just can't safely deploy 1559, no matter how well it works on test nets. And this is kind of the hard part because a lot of these problems that we see with like potential attacks on main nets are a function of how big main net is relative to the test nets. So we can't really, you know, try to sell on a test net and then see. I mean, you know, there's ways we can model that again and whatnot, but we'll really get the real test what's inside main net.

Aside from that, you know, there's a bunch of small issues we need to fix it in this spec. this is the work we're doing kind of day in, day out. Again, in the first section, you kind of saw that, but just, you know, how do we, how do we transition from the current types of transactions to the new ones? How do we, you know, deal with other EPS that's want to add more transaction types like EIP 2718? All of the, you know, just simple U.X, like in METAMASQ, when you replace your transaction by fees because we're changing the way the fees work on 1559.

how do you do that in a way that doesn't create other attack vectors. And so this is really like what kind of the client implementers are working on and it will be probably over the next quarter. And honestly, I think that's kind of the bulk of it. Obviously we need to do a bunch of testing. We need to do documentation. We need to change some JSONRPC formats to return data. But the bulk of the work is really about how do we make main net stable enough to handle 59 and how do we resolve just all of these kind of small issues. would expect. And hopefully, you know, once we get the result of the economic analysis that's been done, maybe we'll tweak some parameters in 1559, but we won't need to rework everything we've done.

It'll really be, you know, changing some small things and reworking that. But the bulk of the work will have been implemented. Okay. So the next hard fork is Berlin, which I believe is slated February-ish, I think early 2021. Yeah, I would say, yeah, Q4, Q1. before Q1. There's not an exact date. But yeah, around that time.

So I think if everything went well, we could get 1559 in the one after. There's no date yet, but I think historically, you know, I wanted to get it in before DevCon. Yeah. But then they moved DevCon back three months. So, you know, we'll see if that's possible. But I think, yeah, that six to nine months range is possible. Yeah.

It's just hard to predict those things. You know, it assumes burden goes well. that there's not, you know, major attack on the network or whatever. And there are dependencies, right? Like, things need to get included in Berlin first in order to make the EIP-159 fit. Yeah, yeah, yeah. Okay. And I think you just mentioned on it, but if you could expand on it as well.

So this work gets recycled and implemented directly into Ethereum 2.0, yeah, if with EIP-1559. Or is there additional new work as well? So for sure there will be some new work to be done. I'm familiar with E2 at kind of a design level, but not at the, you know, implementation level. So this is going to be kind of hand-wavy. But, you know, if you have the assumption that like an E-1, the first chart on E2 is like an E-1 shard, obviously if we get 1559 done before that, which I strongly believe we will, you'll have 1559 moving over from E-1 to E-2. Okay.

How the transaction fees get kind of paid to validators and whatnot. once you start having transactions on E2, I'm not super familiar with. But I think there is, you know, strong consensus within E2, or I think everyone I've talked to on E2 that they want a 1559 kind of flavored E2 where a part of the transaction fee gets burnt. You can query what's the minimum fee for a certain block and whatnot. But for sure, there'll be some changes just because we go from a proof of work to a proof of work stake system. Yeah, but I don't think there's any desire to not have 1559 any two And at the same time, once we transition over, if there are things with the actual 1559 mechanisms we want to improve or change, we should be able to do those changes at the same time.

Well, so how does it work with Ethereum 2.0 right off the bat? So you said like when the Ethereum 1 chain gets rolled into the Ethereum chain, well, there's the phase zero and theoretically the phase 1 that come before phase 1.5. So I don't think there'd be any impact on 8 to for 1559 until then. Yeah. Okay. Okay. So there's, so there's no, the base fee mechanism that isn't built into phase zero at all?

No, not in this taking note, because it's based on sending and receiving transactions. And you don't really have that. Well, you don't have like arbitrary transactions during phase zero. Okay. Okay. Okay. Cool. So, Tim, as somebody who's in the Ethereum community, but not attending all of the

governance and all of the technical calls just kind of keeping aware of it, right? You know, it feels like we've heard about EIP 1559 for a long time. And the perception has been, oh, like, it's coming, it's coming, it's coming, but no one can actually tell us like when or an action plan. And it's felt like as somebody observing this process that, you know, ETH1 development can you get bogged down and stuff like, you know, should we should should should should we do prog pal, right? And like the community screaming, no, like let's do EIP 1559. Everybody wants this thing. Where is it, guys? And I will say like you are doing yeomen's work to like put together an actual

implementation plan and a checklist. And when I see this kind of thing, I have much more confidence that like there's a team around this. It's going to get delivered. There's some organization. So all that's fantastic. So like you're boosting my confidence. And I think probably the bank loose community's collective confidence that this thing will get delivered. But I want to ask you because you are in the trenches. What's your confidence level that we are actually going to get EIP 1559 in ETH1? Because I have to tell you, some people are still like, yeah, okay, Ryan, but like it'll never come. I think what I see as the biggest risk still is the denial of service risks, like just if we can't make each one safe enough to deploy it, you know,

everything may work on the test nets, but it's just like not safe to move it to main net. So that's where I see the biggest blocker. I don't think in terms of implementing 1559, there's any kind of major outstanding issues. There's a ton of like minor issues, right? Like, don't get me wrong. It's a lot of work. But like, we've, our team has been working on it since roughly March or April. And it kind of took us, you know, a couple months to get up to speed on it and then, you know, slowly building momentum over the summer.

I think at this point, like, it's, it's, yeah, it's the EAP itself seems pretty well scope. My biggest concern on it was how we handled legacy transactions. And I think the solution we've come up with that is pretty good. And nobody so far has, has said that it was broken in any way. So to me it's really just can we make the network safe enough against potential denial of service attacks? And I think there I'm confident in the work the Gett team is doing, that our team is doing, and Turbo Gett also has been doing really good, having really good progress recently. It's hard to place the number, you know, on how confident you are.

But I don't know, I'd say there's probably a 75 plus percent chance unless, and what would drop that number is if if there was another potential large denial of service vector that came up on mainnet and that for some reason more block space made worse. Yeah. So I'm pretty confident in the teams working on the EEP itself and also pretty confident on the state of like the core improvements of the networks. But when you multiply two probabilities that are less than one, they shrink pretty quick. Yeah. That's very good. Thank you for that. Tim, one question I've always had about EIP-1559 is the theoretical max block size issue.

So just as a recap with EIP-1559, it makes block size as variable and tries and stabilizes transaction fees. And there are certain parameters for how large it allows the next block to be. And it goes, is there an actual absolute cap on block size? And what is that? Yes. The original EAP was 3X and then we brought it on all Cordova. And I think it was the get team that says there's no way that will ever work. Why won't the 3X size blocks work?

Because just the, again, it was the denial of service risks. And just also the, you know, the periodic like having to process going from like, you know, processing X to 3X spike and whatnot the unpredictable way. A lot of things would have broken there. So 2x, I think, is 2x is where the spec is at right now. So right now there's a maximal, like the blocks will double. So if we have, you know, 12.5 million gas right now, the network, you would, you would have a max block of 25 million gas. I think if that was the main issue, we could probably make it smaller, you know, like if we if we had to have 1559 with like 1.5X, you know, instead of two.

I think we should probably do it. Again, there is something I'd love to see somebody produce data on. My hunch is like at 1.1X, it wouldn't be very helpful. Like the mechanism just like could not correct enough. But like, you know, at 1.25 is it good? At 1.3 is it good? Like there, it gets very fuzzy for me. I think if we get, you know, the denial of service, like the snapshot saying,

why we get turbo get up and running a bit more and we reprise the upcodes you know 2x should be fine but we're definitely open to changing that if you know if this is the deciding factor of whether or not 50 that makes it in so this kind of seems to me a little bit like ethereum's relationship with uncles where over time client development and an iteration and research means that our clients are more efficient and as a result the uncle rate goes down And for those that aren't familiar, the uncle rate is like, how often do, does Ethereum accidentally make a bad chain in like a, like it accidentally forks a little bit, but then then we converge back onto the main chain? And we don't want uncles because it's relatively inefficient. And over time, client development has been able to reduce the uncle rate, right? We've gotten more efficient at not producing uncles, which means we've gotten more efficient at producing and propagating blocks. Is that something that we could see with the variable block size? Could, like, does? design and research and improvements increase the total block size? Yeah.

And that's, so uncle rate is not our bottleneck anymore. Our biggest bottleneck is stale access. And the way for that, get has this great shot, great post that explains snapshot of again, I'll send it to you and you can share it in your show notes. It's fairly accessible. Even if you're not like a, you know, client developer, you can definitely read this and understand why. For some reason, it's not working now.

I'll send it to you after. But basically, Ethereum data is stored in a tree, right? So the Ethereum state is like everybody's account and balances and all the smart contracts codes and their balances and whatnot. It's like a whole big, big tree. And that means every time it grows, you're kind of adding leaves, we call them, to the bottom of that tree. And there's a number, there's a max number of kind of rows. or sorry, of columns in your tree. So like there's like a, we call it a root node

and it has a couple of childs. And at some point those childs have children and whatnot. And the number of like branches that you need to hop into to access an account makes state access in general slower on Ethereum. Because when there were zero accounts on Ethereum, like just the Genesis block, you basically can access every account from the root node.

But then when you start having more and more data stored, the tree just goes like deeper. And that means every time you add data, Every time you access data, you need to go all the way down. And this is what causes some issues with just performance on Mainnet, because our state is so big, there's so many accounts, so many contracts relative to any other network like Ethereum Classic or our test nets, that it just takes a lot of time to go down every time.

And so right now what clients are working on is instead of storing you law in a tree, just have like a flat list of everybody's account. So that means that you can just access it directly. And that sounds simple, but the hard part is tracking all of the multiple changes that happened to accounts on every block. But once we have that, I think again, we'll be in a spot like a lot of the performance work

we did around block propagation to reduce uncle rate, will be in a spot where like state access has been made much more efficient and therefore we can do more changes on Ethereum. And account extraction is another popular change that's been kind of held back for similar reasons, just because it's not that the way we store data is in but it's just become inefficient given this the scale that we had and this is not a problem we had three years ago.

Yeah, more money, more problems is how it goes. Exactly. Okay, so, so there's some future iteration, future development of Ethereum that can even improve the efficiency of EIP-1559 so long as we, you know, tackle this, you know, is this what state blow is? Is that what they're talking about? It's exactly what they mean. The tree has become too deep and it takes too long every time. time we want to go to it. Yeah. Okay. So, so with successful research and development in tackling this problem, it's possible that we could get up to those three, three X larger block sizes or perhaps even

bigger than that. So I would start with 2X, you know, I would bridge it. But I think, you know, if this stuff all works, I think we can very likely get to 2X. And yeah, and then see from there, once it's live on Mainnet for a while, you know, are we comfortable pushing it more? What would be the benefits and whatnot. Cool. Awesome. That is cool. I like things that get included in Ethereum that improve with other improvements as well. That seems to be the right way to go. Yeah, definitely. Tim, it has been such a pleasure to have you on. We've wanted to get you on in front of the Bankless Nation for some time because honestly, we just wanted to figure out if EIP 1559 is really going to happen. And you've given us, I think, some additional confidence that

it would be 75% confidence or higher that it is indeed going to happen. So thank you once again for your work and for joining us on State of the Nation today. Thanks a lot for having me. It's our pleasure. All right, guys, we're going to get back and talk about in just a few minutes and talk about five things that are going, actually six things that are driving the crypto markets today. David and I have some insights to drop on that. But before we do, We want to get some of our fantastic sponsors that made this state of the nation episode possible. Zapper is this new tool that I use to check out all of my assets in DFI. As you guys have known, DFI has absolutely exploded recently.

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All right, guys. Welcome back to State of the Nation. David, we've got to talk about some things that are driving. These are like drivers, maybe somewhat macro themes that are driving, particularly crypto prices right now. And I want to bring up this Market Monday opening note that you put. put together on just yesterday. The bank.

And use that as a guide for talking about some of this stuff because I think it's super insightful. But you listed six different things that are driving crypto markets right now. Before we get into those, why is it important that we understand crypto prices? Isn't it just like a random walk through crypto, right? It's just whatever. It's all noise. It doesn't matter in the short run.

it's all going to work itself out in the long run. Why do we need to know about these themes anyway? Yeah, and your reference to the random walk is a good one. For those that don't know, the random walk is this kind of theorized model for how crypto prices move. And if you think of a really drunk individual who's like stumbling down the road, they stumble down the road, but they still follow the road, right? Like they go left and right across the road, but they still follow the road.

And so understanding where this walk goes, is really important because where it goes is relevant to our goals, relevant to our ethos, relevant to the bankless nation, right? And so understanding the things that are impacting the price of ether is something that impacts the bankless nation, right? Fundamentally, we all are here because of things that are valuable, assets that are valuable, right? And so as the value changes, it's important to integrate that into your understanding. All right, well, let's talk about some of those things that we think are affecting the random walk. And maybe it's not so random after all. And the first is this. This has been a theme of 2020, right? You know, people in the

crypto community have been talking about, you know, like the rampant inflation and money printing of the dollar ever since 2008. But like we are seeing it in overdrive in 2020. It's a part of our lives now. Like bills are being voted on it. It's a constant discussion. Are we going to get another air drop check at least in the U.S. Other governments are similar. Can we talk about this first one, which is the new COVID relief package? So for folks that have been outside of U.S. politics anyway, what is that and why is it important to the story here? Yeah, this is the second COVID relief package with $1,200 in it for all Americans.

And this is something that a lot of people that if they were around now, they would have been bit-corner's, but, you know, 10, 20, 30 years ago were maybe their gold. bugs or libertarians. People like Ron Paul said something like this was coming like forever ago. We're like and Ron Paul said like, you know, inflation is eating the middle class. And, you know, what has now with COVID is now we need inflation in order to survive, right? And so they are pumping dollars into the world in order to sustain, you know, the unemployment and the, you know, the lockdowns that we are able to have. So it's trying to balance out, you know, making sure that people don't have to go out to go to work and so they can stay home and be safe away from

COVID and also allow businesses to be afloat. But then it's also doing this through inflation, right? More or less at the end of the day, the value of the dollar is going to inflate when a bunch of dollars get injected into the world around us. Yeah, so the big question is the, you know, the $1,200 check is coming. It seems almost inevitable. But the big question is, where people going to put that $1,200. I had a friend of mine who wasn't in crypto previous, but he got his $1,200 check. And he just went wild. Like, he just like, okay, now's my chance. It's money. You know, this is evidence of the money printer. Maybe some of the crypto folks are right. And you just started investing in Bitcoin and Ether. And of course, I'm in the space. So that's the sort of thing.

Like, there's some selection bias here. That's the sort of thing I'm going to hear about. However, if you look at how crypto prices sort of responded post the first stimulus check, it's been pretty insightful, pretty phenomenal way above the S&P, at least for Ether and Bitcoin, way above the price of gold. Of course, that could be other market cycles. So, you know, the trend line isn't long enough to, yeah, there's some noise here. But I guess the question to ask yourself is like, what are you going to do with your $1,200 check once it comes.

If you have enough disposable income to meet your needs, are you going to put it in stocks? Are you going to put it in real estate? Like, what's the store of value? Are you going to put it in crypto? Right. That's why I think we're seeing this graph respond in that way. And keeping it on this graph, maybe it kind of doesn't fit in the narrative that gold is underperforming versus the S&P, but you can even pull apart some of the companies in the

S&P, typically the tech stocks from the rest of the S&P. And the reason why we would want to separate the tech stocks is, A, they are absolutely dominating the S&P. And so they basically are the S&P. And the reason why tech stocks have done so well is they typically don't have any debt. They actually have the opposite. They have a lot of cash on hand. And what's really going on is companies that have liabilities aren't doing so hot, and companies that have assets are doing hot. And so, you know, I bet you if we were to separate the S&P line into companies that don't have liabilities

and companies that do, gold would be doing better than the companies that do have liabilities and worse than companies that don't have liabilities. It's all about having cash, all about staying solvent in this market. Yeah, tech companies too. I think everyone is seeing this move to digital. I mean, like I'm doing more and more on screens and less and less in the real world as a result of COVID. And I think some of those practices are going to be sticky. So some of the telecommuting software we use, some of the remote software we use is going to continue in the future. everything is becoming more digital, hence tech stocks. Interesting to observe, but it looks like the check is going to land.

We're going to have money printer go burr. We're going to have some helicopter money dropped on us at some point soon. The second thing you mentioned. Just to add on a small little tip on to the end of that because it's not something I knew at the time, but China is also doing an airdrop in their central bank digital currency to their citizens. So this is not the only game being played. Not to be outdone. to be outdone, but, you know, China wants to print some money too. All right. Election uncertainty.

So this is, again, a little U.S. centric, but I think it has ramifications across the world. I'm sure a lot of folks know what's going on, but like, what's your hot take on that and how that leads to market uncertainty? Yeah, there's two things here. First off, we don't know who's going to win the election. And so there's uncertainty around that, right? And there's also uncertainty as to how one of these parties is posturing about how they are going to accept or not accept the election results. And the mere possibility of somebody not accepting the results of election is also very, makes the market very uncertain, right? Like that is a very uncharted waters for the whole entire country. And so therefore it's going to be uncharted waters for the market to learn how to deal with

that, right? And in the backdrop of this, we just have civil unrest from the polarization between these two parties, which kind of just amplifies uncertainty, right? Like you take uncertainty and then you add civil unrest on top of it. You just get even worse uncertainty. On the flip side of things, however, both parties seem to be posturing and wanting to, like, get into the party that is giving out relief, right? Like, both parties want to be known as the party that got checks into the hands of Americans, right? And, you know, the Democrats, famously, the more pro-worker party, really just wants to give out more money than the Republicans. But interesting, the Republicans aren't the no party. They aren't the, no, we're not giving any money party. They are the party

if we're just going to give a little bit less, right? And so both parties are being the parties of relief. So kind of if you're, if you believe the part number one where as money gets injected assets, especially crypto assets go up, both parties seem to be posturing for we're going to print more money. So that's interesting. Yeah, it does seem like both parties have a modern monetary theory agenda. No matter who wins, that's going to be the long term trend. But in the short We've got this election uncertainty that we're dealing with that could cause markets to dip. So if we're looking like short, medium turn, right? You've got money printer go burr, which is maybe pro crypto, possibly.

But then you have election uncertainty, which is like uncertainty. Everyone goes to things like dollars, right, in that case, cash money. Just want to make sure I have enough money to pay my rent and that sort of thing. All right, let's talk about a third thing you list, which is this Bitmex incident. We've talked about it with Jake on state of the nation last week. But despite Bitmax falling, you know, one of the largest crypto derivative banks, Bitcoin bank primarily, Bitcoin is still alive. It's like, you know, taking a hit, but it's doing okay. Yeah. So on the Bitmex news, the BTC and the rest of crypto price just

plummeted, right? Because that's bad. A lot of volume and a lot of exchange activity happens on Bitmex. But I think over the long term, this is going to be extremely bullish. Because if we want more and more of the world's capital to have a reasonable chance of getting into crypto, then we need to have legitimacy in this space, right? Like the legitimacy of the cryptocurrency industry is much better to have an asset to have than Bitmex the exchange. And so I'm totally a fan of, you know, throwing Bitmex overboard in for favor of more legitimacy. And what's also interesting is that the market, you know, it didn't crash. It dipped at the news of BitMex, but then it just resurged and rebounded even harder, right? And so in bold markets, you know, we shed bad news

and with good news, we moon, right? And so that's kind of what I see happening. I like that use that word legitimacy, because obviously the government's way to get legitimacy in the market and trust in the market is through regulation, right? So I do think trust in our institutions in general is at all time lows. But the CFTC solution for that is basically, hey, we need to regulate, we need to be watchdogs in the industry. But legitimacy is a neutral word. And so is trust. The other way we can gain that trust in the derivatives market is actually through transparent defy. Right. So if you're using a transparent smart contract driven derivatives platform, maybe something more along the lines of DYDX or even in the future synthetics, everything's

on chain. Everything is audible. You don't have to trust Arthur Hayes with your funds, right? That, like, that's another level of legitimacy, I think. And I do think all of this is bullish for, for defy. So does Robert Leshner, hold on to your butts, he says. Hold on to your butts. Well, I think that's a Bart Simpson quote, actually. I'm not sure if there you go. Nice. All right. So the fourth thing is public companies loving Bitcoin. Right. Super interesting. Somebody asked me on Twitter, you know, is this bullish for Ethereum?

So I, or ether, I guess there's maybe two questions there. So tell us about public companies loving Bitcoin. And it seems obviously bullish for Bitcoin. Is it also bullish for ether? Yeah, sure. So this is the second public company to add Bitcoin to its balance sheets in the very short timeframe, like maybe six weeks, right? And the first one was micro strategy, which, you know, at the end of the day,

Micro Strategy is really just this one guy who seems a little bit impulsive and seem to just market buy a bunch of Bitcoin and put it on his company's balance sheet. The second is Square, led by Jack Dorsey, who is, you might even call him a Bitcoin maximalist, definitely pro-Bitcoin, doesn't believe in other tokens, doesn't necessarily believe in Ethereum. And so we have two companies that with Bitcoin on the balance sheet. And this is a big signal to other companies that the Bitcoin scarcity game is being played, right? Like you guys, I hope you guys all read the article that we put out on on bank list called Bitcoin Scarcity Game talks about how like the choice to not buy Bitcoin is a choice, right? And so, you know, if companies aren't thinking about putting Bitcoin on their

balance sheet, they're going to lose out to companies that are thinking about it, right? So very fundamental to the value proposition of Bitcoin. And we see this scarcity game playing out on larger and larger scale. Like first off, it is played off by individuals who, you know, spin up their CPU on their laptop to mine Bitcoin in 2009, 2000. and then they, you know, mine it more because they want more Bitcoins, right? And then, you know, it starts to, people start to buy it. And then, you know, companies start to build around it. And then it just scales and scales and scales up. And now we're at the point of public companies, is public companies turn to play the game of musical chairs with Bitcoin, right? And that's what,

that's what I see currently being played. And that's just tailwinds for the narrative of Bitcoin. Is this bullish for Ether and Ethereum? You know, I see a lot of Bitcoiners tease me saying, like, you know, nowhere did Michael Sayer of Michael Strategy or Jack Dorsey put Ether on their balance sheets. And so, like, no, this is super bearish for Ether. Like, they don't even understand what ether is. But I would remind them that every time that Bitcoin moves upwards, Ether tends to move upwards even more, right? Just because of the nature of the market caps. Like Bitcoin is, I don't know what the market cap of Bitcoin is, like $300 billion right now versus ether's like $40 billion. If Bitcoin doubles, Ether's historically more than doubles, right? And so it tends to

be a leveraged play along Bitcoin. So, you know, Bitcoin success is Ethereum success. Because, you know, if people see put Bitcoin on their balance sheets, they're also going to think, like, okay, what else can we put on their balance sheets? Especially after it moons, right? They're kind ride that train. Yeah, I totally agree. I do think probably 80%, maybe more of the people who are into the space, myself included, probably you included. Like, we learned about digital scarcity through Bitcoin and Bitcoin scarcity game. Like that was the gateway for, for me anyway. to Ethereum and to defy and to open finance in general. So Bitcoin is 10 years old.

Ethereum is five years old. I think Bitcoin will continue to be the gateway to other interesting crypto projects like Ethereum. So probably good for both. I agree. All right, this thing is unsettling, David. Bitcoin and Eath have this correlation with the S&P 500 that can't seem to, like it can't seem to shake, right?

So I guess this is part of the first theme that we were talking about where money printer goes burr and then stock prices go up, right? As long as people are like they do an initial flight to safety. So they'll go to US dollars for a bit and then they're like, okay, the world's not collapsing. And the Fed will continue to print money. So they don't want their money in dollars. They want their money in store value assets like stocks. But in crypto, but Ether and Bitcoin have both exhibited this strong correlation. with the S&P.

It almost feels like we're playing in crypto with a leveraged stock game, like a leverage S&P game. What's your take on that? Yeah, this is like, I said this in the article. This is my least favorite thing about crypto at this present moment. Like I signed up for the uncorrelated industry, right? I signed up for a nation that doesn't exist in the real world. Like, but all of a sudden like we're correlated to the S&P stock market, right?

Which, you know, means that we are therefore correlated to a COVID third wave, right? we are correlated to another round of shutdowns. We are correlated to the civil unrest, right? We are correlated to anything bad that happens in the world is going to happen also to crypto. And this has been more or less been true since the early March dump, Black Tuesday or whatever. So we've been correlated for a while.

And I think part of why there's so many different market factors right now is kind of creating that, you know, we're not correlated to the S&P. We're all just kind of correlated to the same level of general uncertainty, right? And so we're also kind of all correlated to the money printer, which is also a good thing, right? Because if like a third wave happens, you know, all the bad stuff in the world happens, well, then they're just going to turn on the money printer.

And that's going to be bullish for ether and Bitcoin again, right? And so I don't like it because I don't like being correlated to legacy. I do like it, though, because then we have upside exposure to the money printer. And like, what is a better value proposition than being able to have upside exposure to something that prints money? It does seem like it's an artifact of time horizon too, right? We are in this like, you know, nine to 12 month, maybe 18 month theme where we're correlated temporarily to the S&P. But like fundamentals suggest that that should not remain so in the future, right?

So if you analyze why buy crypto, why buy ether, why buy Bitcoin, you buy those assets for different reasons than you buy stock, right? So I do expect that like that's just the kind of the the medium term short to medium term cycle that we're in. But I don't think it'll remain so. If we're right about digital nations and if we're right about crypto as an asset class, things should not stay correlated for the long run. But let's get to the fifth thing. And this could be a catalyst for that breaking of correlation, David.

And that's ETH2.0. So is it actually going to ship this time? Because I heard ETH II is never going to shit. Dude, the funniest thing about the last bull market that we all went through is, like, it was, the tone of the bull market was like, yeah, this bull market is going to lead right into Ethereum 2.0, and we're all going to be staking. 2017, by the way, right? In 2017, like not this bull market, the last time.

And that seems to be kind of the narrative that's playing out right now in this appreciation cycle. However, it seems to be a lot closer. I don't know, maybe. That's what I said last time. but I do think that it is indeed right around the corner. And like you said, this is exactly the catalyst we would need to break that correlation, right? And also, first and foremost, it is possible to be upwardly correlated with something. And so while we are correlated, we are still correlated in an up and to the right trajectory.

And I think that's what's going on with crypto. And I think things like Ethereum 2.0, where a lot of the value pillars of ether, one which we just talked about with Tim Beiko, with EIP-159, but then also with staking, actually gets price into ether, right? And I said in this article, I actually don't think that the fact that you can stake ether and receive rewards is going to be a great catalyst for ether price appreciation, because I think the people that are going to stake ether are going to be the people that don't really trade or sell ether that much, have had ether for a long time and also are not participating in defy. And so I really think the ether that's going to become staking first is going to be

dormant ether. Like this is we're talking about like Vitalik's ether or the EF's ether. Ether that has been slated for proof of stake since like 2015. How about your ether? I'll get there eventually, right? But not not necessarily off the bat. I am not going to be the first through the door. No, sir. Somebody else. I will be following somebody else through the door first. Yes. You don't want to lose your Eith on something like that. All right. So if somebody were to ask me in 2017, when is ETH II coming? I probably would have said something like 2019. And that would have been totally faith-based. It would have been like based on my feeling, like we didn't have test nets or I didn't see a project plan, that sort of thing. I feel like we as a community have

gotten a little smarter. But even if you asked me late 2019, when ETH II would happen, I probably would have said late summer 2020. And now here we are. We're past summer 2020. And now what are we saying, David, we're saying like, it looks like it'll be. Q4 or Q1. All right. Q4, Q1. All right. So if you're saying Q4, why are you right this time? Because that's what Danny Ryan said.

Okay. So I'm playing me on Dan and Ryan if we're wrong. It does feel like we've got test nets. We've got implementation plans. We've got you know, actual developers who have the thing running. It does seem like Q4 Q1 is a much better bet than some of our previous predictions.

But there's a lot more evidence to back up the claim that we will begin staking very shortly. Exactly. And there is a huge ETH2 will never ship crowd, right, that says basically the longer it delays. Yeah, to this day, the longer delays, the less likely it is to actually happen. And I think they are in for quite a surprise when that day does come and when ETH2 does ship. That is the thing that I think will impact the ether price. Not that there is actually going to be demand for ether for staking, but just the change in the narrative, right? Like the change in what is true.

Like all of the ETH2 will never ship crew and, you know, that proof of work is here to stay crew. Like all the, and mainly the execution risk of Ethereum 2.0, right? Because if we get to phase zero, well, then phase one and phase two aren't that far off, right? Like phase two super far off if we never got to phase zero. But with phase zero behind us, we can start having that compact. bounding progress, right? And again, like, one of the reasons why Ethereum, quote, unquote, 2.0 has taken so long is we started building phase zero one and two in parallel with each other, right? And so with phase one here, like, it's not like, okay, now we can begin on phase one.

When phase zero is here, it's not like that's when we start work on phase one. When phase zero is here, we can start to implement phase one, right? And then once phase one is implemented, we can implement phase two. Like, a lot of this work has already happened. And so the the anti-Eth two crew, the anti-Eth two crew, I think, is in for a big short squeeze, if you will. You know, because I'm like more confident that ETH II is actually like coming, right? I'm very confident that it's coming swell and sway. It's only a matter of time, probably, probably months, maybe weeks. When we get Vitalik on the podcast next week, I think we can broaden the discussion because

whenever you get Vitalik on a podcast is kind of like, you want to ask the question of like, yeah but so when is it coming like when it's two vitalic right like and this time i feel like in our podcast we can go a bit deeper on not like when eth two but like why eth two right right because this has been a long vision coming like what are the uh the the principles behind the design of each two and what's important right so that'll be a yeah crypto is absolutely political that's quite like, you know, Brian Armstrong, you know, his piece. Just like, you know, he was, and I get, I get the sentiment. He put a blog post out that was like, hey, you know, we're here for a different, like a business mission, right, open finance kind of mission, and we're not here

to talk politics. But at the same time, right, I get, it's not left versus right politics. Right. But crypto is absolutely political. Right. It is like absolutely an anti-authoritarian, like movement. Yep. And that in itself is political. What if you get into it? government, a state that says like, hey, it's illegal to own crypto, right? Well, then the act of owning crypto is very political in those cases. So I don't think you can escape that. And also, therefore, some of the design decisions around ETH 2.0 become extremely relevant, especially with a top-down decision where, like, crypto's illegal. Well, whether we are staking like 32Eth or 3200 ETH is an important design implementation that impacts how the network can function under an adversary

environment such as that. And so that's kind of why we're getting Vitalik on to go through some of the decisions, which are therefore political decisions. I don't know if Vitalik would agree with that framing, but I think we'll ask him. Or whether we can stake it on like a consumer laptop with a cell phone connection or whether we have to stake it in a big data center. That's certainly another political consideration that feeds into the design. All right, David, this has been state of the nation, man, but we've got one more thing to talk about. And that's our new episode, our new sort of mini show that we're coming out with on Friday, the Roll Ups Roundout. So what is that?

What's going to be the format for that? Yeah. So Roll Ups Round is going to be where we go through the news, go through the events, and kind of go through some of the things that Ryan and I have on our mind. So it's going to be a very well-packaged, very quick, you know, 30 minutes, but with lots of topics, roll-ups of all the things that are relevant. And so we have, you know, the price action market commentary kind of distilled what we just talked about, as well as product releases from the defy world, you know, funding rounds,

you know, who's going to be hiring, any legal action that has been taken milestones, who's hiring, and then we're going to go through a series of, you know, what's on the news, what's in your mind, what are you looking forward to, right? So we are always taking suggestions. This is kind of where the bankless nation can ping me and Ryan saying, hey, will you include this in the next roll-ups round? That's what the roll-up round is for. So this Thursday, we're going to be talking a lot about the Q3 token report, which is coming out tomorrow on bank lists. We're also going to be talking about the Department of Justice 83-page crypto framework and what that means for you. Oh my God. I hope Jake put together a tweet summary for that. Yeah. He did, actually. He did.

Okay. We're also going to talk about the blue Kirby exit, which I think is a fun little sitcom episode of crypto and defy. And then we're also going to be talking about tornado cash because the tornado cash is picking up speed. All right. Awesome, man. That's going to be great. So what you need to do is hit subscribe to the YouTube channel to make sure you catch that. That'll be Friday mornings.

We will also be pushing that out on the podcast. So if you're on the run and prefer the audio version of that, that will be there for you too. So this has been episode 18 of state of the nation. We're 18 years old now. David, we can vote. So thanks for joining us. Risk and Disclaimers. Of course, D.5.

ETH is risky. So is crypto. You could lose what you put in. EIP 1559 looks like it's coming. It may not come. Who knows? This is not financial advice, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.