Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Gavin Wood: Ethereum & Ether Sale

Episode Date: August 4, 2014

Gavin Wood joins us for an episode that is all about Ethereum. The uniquely ambitious Ethereum project with its turing-complete programming language is building a platform on which the next generation of decentralized applications can be run. While the project is still in development, the goal is to provide the infrastructure for the completely decentralized web of the future. The first part of the episode features an interview of Ethereum CTO and lead developer of the C++ client Gavin Wood. In the second part of the episode, Brian discusses the crowdsale of Ethereum’s own cryptocurrency ether that is currently going on from an investment perspective. Episode links: Ethereum This episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/031

Hello and welcome to Ep Center Bitcoin episode 31. Today is August 4th and today's episode is all about Ethereum at the ether sale which is currently going on. The first part of today's episode features an interview I did with Gavin Wood. He's the CEO of the Ethereum project and the lead developer of the C++ client. I recorded an interview last week on July 30th here in Berlin. The second part of the episode, I talk about the ether sale from an investment perspective. I'll talk a thing with such valuation risks and what's going to affect the ether price in the future. So if you're interested in a participating ether tale, I hope that will help you with your decision making.

Let's start. I wanted to ask you something which I've actually never asked even though I've known you for a while now, which is when did you get interested in Bitcoin and what was the sort of involvement with Bitcoin? on the 4 Ethereum? So I've been aware of it for quite some time. I remember years back when I saw a story on Slashdot about it. So I mean, I don't know if that was 2009, 2010. But anyway, I've been aware of it for some time.

And when it got to 2011, I think I actually mined some. But I've looked all around for the backup of my own directory at that point. I haven't been able to find them. then fast forward to 2013 and it obviously hit the news a bit more and especially mentioned was was Kreuzberg I think it was an article in the Guardian and it was it was basically pointing out I remember that yeah yeah there was like a brick and it was it was it was the first brick and water place to take it and yeah I heard it you know I heard about the Silk Road as well and sort of might be worth looking into

and I got in contact with Amiataki. Through Amio, I met a couple of other people and eventually through their mind, Italian. What was it about the Ethereum project that captivated you so much? At the time, I was working on less motivating projects, let's say.

I was working in the law, software law software for law firms and having to work with technologies that were difficult and morale reducing morale sound really so when I saw Vitalik's white paper as a software engineer it was a breath of fresh air it was something I could really sort of get my teeth into something that was pure and nice and and that's basically why I took it on in December. It was effectively meant to be a nice little project over Christmas. There was obviously some aspect of wanting to see,

maybe, you know, maybe this could be something more interesting than just learning Bitcoin. You know, this has got a bit more purity to it. It's been a bit better designed from the ground up, and it does a bit more. But I was also kind of the scientist in me wanted to see if it could really, you know, how fast it would be, how whether it would work really. Yeah, I would say a healthy dose of cynicism really brought me into the project and made me want to try it out.

And then I take it you found your kind of questions to have positive answers. Yeah, to some degree. I mean, I think we're still working out a lot of the details. But I think to some degree I've brought to the project. some of the fine-tuning, some of the alterations that the protocol kind of needed in order to become really more than what it is. Basically, I would hope that

my contributions have helped to refine it into something that will make it down the line a bit easier for people to utilize and therefore a bit more, have a bit more promise in terms of bringing more applications onto it. Let's kind of explain what Ethereum is. Can you give us a definition? So Ethereum, first and foremost, is a platform.

Most applications, if not all, that can be written on the Ethereum platform, can be written on other platforms as well. They can be implemented on other platforms. In the same way that Bitcoin can be implemented without having to have the blockchain and the decentralized network, the notion of just being able to have a ledger that sits on a server and that people can interact with is really easy. No problem there. The problem, let's say the advancement the Bitcoin brings is the fact that it's decentralized.

And thus when some large organization, government, big corporation, when they want to say, hold on, you running that server, I don't want you to run that server anymore. This is illegal. You're serving, you know, your arbitration. value transfer, that's illegal. When they come along, with a normal server, with a traditional way of doing it, they can, of course,

they have power over it. With Bitcoin, they have no power over it. And that's the key advancement Bitcoin brings. And so coming to Ethereum, what it effectively does, it says, well, money is one sort of thing

that you can put on a server and that we can now decentralise. Well, let's make a platform for decentralising absolutely any software, any service that we want. we can then decentralise, make it work based on the trust through cryptography, not trust because it's, you know, an authority.

What Bitcoin brings the table and what Ethereum sort of trumps is the notion that you don't need to be a server to have that position of trust. Everybody, all of the peers in the peer group, can collaborate and form the trust among themselves. It's sort of like, you know, this notion of order through K. rather than order through explicit design from some godlike figure. And so the platform for Ethereum is a platform that will allow you to make decentralized applications of the variety that we might currently think of is social contracts.

So whereas money, cash, the clearinghouse, the notion of a clearinghouse, is a social contract. Ethereum allows you to introduce your own social contracts and allow other people to interact with each other through those social contracts. Can you define a social contract? A social contract is an agreement made voluntarily by a number of people who take part in a society. Now, there doesn't need to be a geographically limited society. It could be anywhere in the world. But the notion of a social contract is simply one that is about the fact that people want to play by the same rules

and therefore be able to expect that everybody else is playing by those rules. I think the sort of the idea of decentralizing, you know, a variety of applications. You know, I think it's very clear. People can understand that. It makes total sense to me. Like, for example, something like Dropbox, you know, which is like an often used example. It makes sense to me that, like, you can decentralize that. And, you know, that's really interesting.

But it's kind of what I find a bit strange and not necessarily so. intuitive is why the idea of a contract is so central to make this possible. Even the notion of a social contract is new in the world of technology. It should be no surprise to us. Bitcoin really introduced as those of us who are technologically savvy it introduced to the notion of a basic social contract. I can go to an academic department, you know, one that, you know, to date with the latest advancements in computer science, and they won't understand the implications of the blockchain,

of Bitcoin, of Ethereum, of all the other projects out there trying to do this. Why not? It's because it's yet to be absorbed. It's yet to be fully understood. and it's still very much in its infancy regarding what the ramifications and repercussions are for society. It's almost like we've solved the problem, but we're not entirely sure what the problem that we've solved. But we know we've solved it.

We know we've got somewhere. We know we've reached new ground, new territory, because, well, the fact that Bitcoin is starting to cause, I mean, I don't think it's really got there yet. but is starting to cause such a sort of ground shift and a fuss in the establishment is one reason. But there are others when you start sort of getting what the idea of this notion of an autonomous contract or an autonomous agent is, when you start sort of thinking about, hold on, well, if this is possible, maybe all of this other stuff is possible too. And when the door starts opening, you start to realize, oh, yeah, actually, this is actually something quite new, something that we weren't able to do before.

If you sort of look ahead, I don't know, five years or something like that, and like to speculate what those ramifications could be and what the world could look like at that point, if sort of if you live up to its promise, what would you say? Well, firstly, I don't really know, but I will make what predictions I can. There are many instances where people would like to collaborate with each other. And in some cases do, for instance, in Italy, in the north of Italy, it's actually quite common for, in a village, a group of people who all trust each other to get together and to put in a large order to a farm, say an olive farm, and they'll get, I don't know, enough olive oil to last, you know, each of the maybe 20 families, six months. In the UK, you know, this just isn't possible.

People, there's a breakdown of community. There's people often don't properly know their neighbours. It's not like in an Italian village where, you know, everyone knows each other. So we don't have this level of trust. We can't sort of hand someone money to do this for us and ex-exam. expect that they will, you know, sincerely, faithfully sort of return as the Oliver, our share of the Oliver. And so we don't, we have to sort of put our faith in supermarkets and centralised entities that have, you know, great, that have their shareholders, basically. And so they,

they have to make profit for their shareholders. And so you don't get these cooperatives forming. And that's a shame. Because there's nothing intrinsically different. about the people in the UK to the people in these Italian villages. So what we would like is a system so that people can trust each other. You know, people can gather trust, or ideally interact and form agreements without the necessity to trust each other, and can put together these cooperatives, make systems and mechanisms of cooperation that don't require a centralized authority telling people what to do, you should pay this now, you should collect it now, you should go there.

Ideally, that will just sort of form through the software, through something that everybody can know and see and understand. And that is what Ethereum, but that is what Ethereum and smart contracts and the notion of a social operating system, that's what it's going to start bringing to society. So when you say, well, what are the, what are the sort of applications, then it becomes a bit harder because whereas the notion of clubbing together to buy some olive oil is a relatively sort of, you know, blunt instrument of a social contract, you know, people can understand it. It's, yeah, it's, but we will get, we will get much more nuanced ways of cooperating and, and agreeing with each other. And that's when it really starts to get

interesting. So what might those be? So the notion of an escrow is quite an interesting one, so an automated escrow. But probably the thing that's most interesting to me is insurance. So insurance companies at the moment basically act as a massive fat middleman. They collect a lot of premiums off a lot of people and they make sure that their risk is a risk portfolios, diversified. And then when any one thing goes wrong, they can pay out and still make a nice, tidy profit. Now, there are lots of people who like a nice gamble. But the point is that you've got these two sides of the equation. You've got people who want certainty and people who like to gamble. Well, one of the things that we can start to imagine is, well, why not just combine

the two, have an insurance contract on Ethereum that allows you to be paid out a large amount of money if an earthquake happens in your area and have other people that want to bet in the opposite direction and want to win a, maybe a relatively small amount of money as long as the earthquake doesn't happen in the next day. And so you end up with a decentralized insurance autonomous insurance. It seems like that would be such a complicated system to set up. How do you have a price finding there?

And there's a lot of expertise there that insurance company has and that it seems to me that would be quite a challenge to accomplish that with a contract on a blockchain. Firstly, there will be some degree of expertise,

like how much is, what is the risk? But, you know, that can largely be left to market principles to work out. If more people are willing to bet on for this price, then the risk is probably overestimated. If fewer, then the risk is probably underestimated. And there will be ways of encoding, effectively, you know, selling or determining the risk through market mechanisms. So I don't, I think most of what an insurance company brings is firstly, certainty.

But again, that could be done. There's nothing intrinsic about that. And they bring, you know, some degree of reliability. And other than that, they're just a massive computer. They employ a lot of people to push a lot of paper, a lot of pens, a lot of paper going around the desks. Now, yes, you're right. coding it up would be

probably non-trivial. I mean, I've written a fair amount of software. I suspect it would actually just take one or two devs, not very long to do it. The key point is that once it's written, it's written, and that's it's done. And people utilize it,

indefinitely. Whereas an insurance company, they have to keep paying the people who work there to push the pens and papers around the desks, fly people around the world. I guess another function would be the verification of the claims, but I guess that's also something where you could have a marketplace of arbitrators too. Ah, well, the verification of the claims doesn't need to be at all.

So if it's simply an earthquake happened in my area, I want my payout. Well, they can prove that they deserve a payout because they're on the contract as having paid. You mean if there is some data fee that says, there was an earthquake. So then you say, right, well, how do you prove that, you know, that an earthquake didn't need happen there? And of course, yeah, then you need. So there are a couple of ways of doing that.

One is a basket of trusted data feeds. So then you don't have to trust any one data feed. You know, you just take the median of a bunch of them. They all have sort of very sort of semi-trusted pseudo-trust. And the second way of doing it is what was called a shelling mechanism, whereby if enough people, so this is effectively decentralized data collection

and it relies on the notion that enough people will be telling the truth such that, and when people lie, they lie in a more random way and so you're able to, through using averaging techniques, find the truth. Of course, you'd still have like, let's say my house gets robbed or something.

Then, you know, you'd have to go to the police, they get a police report. You know, I don't think the police. police will have a trusted API that speaks to the blockchain, but maybe in the future at some point. That's quite possible. I mean, the German government has recently started releasing private key chains. So you can now...

Oh, for the government ID. Right. Yeah, I mean, sure, at some point in the future, perhaps if there's a society built on top of that, then you could have... So all it actually has to be is the police have their private. ID that they can sign a statement with, a digital statement. Let's touch on one more thing, which I think is extremely interesting. When you talk sort of about the long-term or medium-term potential of platforms like Ethereum,

which is voting systems, and then the idea, I guess, also of having Dow's or decentralized, autonomous organizations, can. Can you explain a bit how those work? Whatever is possible with Ethereum is possible today, as long as you give up the notion of being decentralized in autonomous. So there's a notion of having an organization. Now, the organization has a bunch of people that in some way cooperate for the greater good of the organization doing whatever end does.

If it's an NGO, then it's presumably helping people. If it's an enterprise, then it's presumably making money for its own. Now, as soon as you make it decentralized and autonomous, what you're basically doing is saying, we won't have any person running it. We don't have a hierarchical structure. We won't have someone in charge. We won't have the chain of command. Rather, we will say that the organization should exist.

purely based on a set of rules of interaction, which is to say, and people join the organisation, they can be certain about how they will have to interact with the people, what changes will be made, how they will be made. Basically, it's a bit like you take the CEO or you take the sort of manager and you can read their mind.

You know everything about how they're going to decide something, who they're going to listen to, what they're thinking in terms of, what they really want, how they're going to approach problems, their strategy. That's basically what the blockchain allows you to do. So you can think of this as a contract or an interconnected set of contracts because it's rule-oriented. It seems to me that this may work well in sort of a clear-cut world where it's clear what

rules you need, but it seems like in the real world there's a lot of ambiguity. Do you think that's a problem for DA? or it so in so in the real world there is

ambiguity in terms of what it is that we mean natural language is necessarily a bit ambiguous and we are

imperfect beings we don't always interpret the rules as they meant to be interpreted when you're in a computer system when you're in a mathematically

formalised system you can that just goes out of the window. It's perfect. It has to be perfect. It has to be deterministic. It has to be exactly perfectly specified. So in the real world, we have, through necessity, things like reasonable and in the spirit. We don't have that. We can't take that into the, well, we can take it into the computer world with us, but there's no need. It's forced on us in the real world. It doesn't, it doesn't, it doesn't, it's not forced on to us in the computer world. and therefore we can up front actually specify the rules

and specify them in a perfectly deterministic and perfectly understandable way. That seems to me sort of argue the problem of way in a strange way. I mean, it seems ambiguity is often, it just seems like ambiguity is part of our life. You won't be able to write contracts that, I mean, perhaps the contracts themselves can be unambiguous, but it seems like that then

they may just conflict with an ambiguous world so within a computer system the lowest level of representation is the binary digit it can be either one or zero sure I know a computer program will be

like non-ambiguous there won't be ambiguity in an Ethereum contract but my point is that if you talk about replacing a company with unambiguous code it seems like a lot of the things a CEO does every day is deal with ambiguity

in ambiguous situations and it just seems like to replace a CEO's role with unambiguous sort of clear-cut deterministic code that just seems impossible to me So a CEO's job is to make unambiguous, is to make decisions.

Yeah. Now, there is, being the real world, of course, I think probably what you're getting at is that there is imperfect information for him to make such decisions. But nonetheless, when he makes decisions, he makes an ambiguous decisions, or at least if he's a good CEO, he makes an ambiguous decision. Yeah, let's do that maybe. you know, that's an ambiguous decision. That's not a good decision.

CEO will say, right, this is the strategy. You need to do this, you need to do that, you need to do the other thing. And specify that in a very ambiguous way. Now, in the real world, there is a lack of certain information a lot of the times. And translated into Ethereum, there will be, you know, you can't have more information than is in the real world. But I suppose the point is that that will be. encoded in such a way that when the Ethereum contract or DAO deals with it, it will know what the limits of that information are. So it will know the percentage error margins on what this is coming in.

Yes, there will be grey areas, but there will be very well defined grey areas. If the risk is high that this is not the case, then it will be specified that the risk is high and it's not the case and the DAO will be programmed in order to understand what that risk is, understand the likelihood and the probabilities and the uncertainties involved, and still deterministically and perfectly make a decision concerning it that is an ambiguous. So let me try to run through sort of an example, how what that could look like that I think can people can relate to and you can correct me if I'm wrong, right? But so a company that sort of talk about a lot in the Bitcoin cryptocurrency space is Kickstarter

because I guess a lot of people are interested in how you can replicate those in a decentralized way. So if you had like a Kickstarter DAO, it would somehow have rules on how to submit the project to the platform. Perhaps there would be some sort of mechanism by which people are asked to, you know, approved projects. Maybe there will be people vote on it with their reputation, say, is this a project we want to have on the platform? Then it would have defined rules on how people can fund the projects and what they would be given some token or some reward that they can later claim.

Maybe you would have some sort of reputation system that afterwards people can vote on, whether the people who created the projects were trustworthy, so that in the future, if they have another one, you can look at the history. Maybe there would be some escrow function somewhere so that you'd have the structure where essentially you can sort of do what Kickstarter does, which is people submit projects, you know, get funded, and then they give back a reward or something to the participants

without having that centralized organization that says which projects are okay in a platform and takes 5%. Yes. So that's about... So I think the most important thing is the final point there, that you don't need the central organization to tell you what you can do and to take money for taking that, for doing that. And that's really what it all comes down. you still have, for example, Kickstarter, all the work they do in the U user interface, website, etc.

Again, that only needs to be done once. So it's not clear why they should get 5% of everything. So let's talk a little bit about the sort of components of Ethereum. Maybe we don't have to go into a lot of detail here, but I know there are a lot of different things that have to be in place for people to be able to. to build applications on this and for Ethereum to work. Can you go into this a little bit?

I know perhaps at the core there will be in Ether browser, no? Yeah. I don't know if that's a good place to start or you want to, or maybe there will also be an App Store, no? Indeed. There'll be, so

Ethereum can be described as one component, one of three components to what what people have been calling the Post-Nodon web or web 3.0. But this is basically a notion

of having a decentralized web. So with a new web, there'll be a new web browser. And this web browser would be, you know, you can think of it as a wallet for a wallet with an HTML window, or you can think of it as a browser, but a browser that has Ethereum

running in its back end. Now, in addition to Ethereum, there'll be two of the technology. one would be affected to allow individuals to communicate with each other but they don't need to without any necessity for agreement so there's no notion that you know you have to remember what the other person said or that everybody needs to be able to form consensus on what you two are saying to each other it's just a way for you to do communications like kind of like the internet the internet is to

communications what ethereum is to agreements the other third technology is something that allows people to publish and distribute information. Generally, larger bits of information, but also things like templates for web pages. The notion is that this information is stuff that doesn't change over multiple days or weeks. So that's like web hosting.

Is that correct? Kind of like web hosting. Probably better thinking of it in terms of BitTorrent. So kind of like hosting a torrent file. So if you have a decentralized internet, then where will websites be hosted? Can you host a website in a decentralized way? Of course.

A BitTorrent is a decentralized piece of information that can be downloaded from the internet. There's no reason why the information can't be an HTML file with a bit of JavaScripted images. And would that be performance-wise competitive with centralized web hosting? BitTorrent probably wouldn't be, but we're looking into methods of a downer.

the basic idea of that with optimizations that would allow it to become competitive. So when you talk about BitTorrent web hosts, essentially, I would try to load a website, I would be connecting to lots of peers that then would send me pieces of the website and I would assemble it in my browser now. Is that that's right? As a basic idea, yes. Of course, the way that we're envisioning it is that you would already be connected to the peers. Yeah. You would already likely have the peers that are going to give you the websites that you want.

And therefore, it's actually reasonable. You may even have already got the websites because they're looking at them and they've decided that, you know, you're a good idea to, it would be a good idea to cash that one for you. So it might be that you go to your website and the template's already there. So you go to your news site and, of course, you've already got most of the template loaded. all the images and that sort of stuff. And you're just waiting for the content. Sure.

And of course, then the content is... I guess that's a bit like Amazon, you know, in the preload the page and the JavaScript or something. Yeah. So, yeah, it seems like we have this gigantic project ahead of us, know, of like an endless amount of, on the one hand, infrastructure components. So, yeah, there's the app store, browser,

also things that will be used by a lot of applications, such as identity systems, no, reputation, arbitration, I think, would be really important, although if there's no ambiguity, then maybe not. I think you're right. I think there will be sufficient amount of ambiguity that we will need. So how is that all going to be developed? What parts of this will be developed by sort of the official Ethereum team?

What parts of it will be developed by independent developers, independent teams? Yeah, that's a good question. So the official development team, or dev, as we're called. I suppose it's like, it's Ethereum, but it's also Web3. So it's also the other technologies as well in the browsers. Dev will first and foremost develop the Ethereum protocol, the 1.0 protocol as specified in the white paper or the yellow paper. That's its primary purpose.

After that, it will start developing the tools, so the programming tools, the development environment, the browser. and then after that it will if it's got enough money it will dedicate its resources to developing the other two web three technologies so this idea of a peer-to-peer message low-level

not something like email but low-level messaging system and the content distribution system now of course you're right to bring up the reputation system and so on now we are hoping that we'll be able to address

those as well but if not we've had, you know, real great interests from the community in terms of trying to understand. Maybe they can do it. Maybe they just want to sort of have a play around with it. But I think as time goes on, we'll draw ever greater and sort of greater crowds wanting to play around with decentralized applications.

And these are really the sort of building blocks, the great sort of, there's a lot of, I don't know, there's a lot of potential. to really explore this unchartered area by building these things. So I think that even if we don't do that, there will be plenty of interest by others who want to. Will people be able to profit from building applications? You know, will you be able, for example, to build, say, like,

I'm going to do a startup now and build a reputation system. And then I hope in the future, if it gets adopted and widely used, you know, I will make profit from that. Is that sort of thing possible? Old models of content creation are going to become increasingly outdated. But this is not content creation, right? Well, I mean, you could argue that the notion of a reputation system adapt, software is content, but the creation of information-based stuff.

Sure. But then that's a different question to saying, can you make money? from it. Personally, I think, yes, you can. I think there will be an increasing amount of money made from selling one's expertise in certain areas, creating consulting potential. So if in this case, suppose you do create the reputation system, and it's a really good reputation system, it's like, you know, it gives you the ability to know that someone is, that this identity is 100% trustworthy, a real person, you know, without giving away any of their necessary. necessarily giving away any of their privacy,

that would be great. And if they could come along with that, I suspect it probably would get adopted. And then, of course, you get other people wanting to build on this infrastructure. And they say, right, well, wouldn't it be great if we could, you know, get this person to instruct us, so they hire them.

Or maybe the person, you know, writes a book on how they did it and how white works and maybe is instructive in terms of getting people to understand it and trust it. and be able to use it better. Sure. I guess a bit like Red Hat and Linux. I think the interesting example there is if you look at the enormous impact Linux

has had, like how enormously widely is used. And then you look at Red Hat, which is, you know, maybe a successful company and profitable, et cetera. Sure, it is, right. But compare that to Apple or Google or something like that, then Red Hat is tiny, you know. So, I mean, I think this kind of, the thing you're talking about, of course, that makes sense, right? Like, so you develop some value piece of software, help people implement it, you know, and I'm sure you can get paid, you know, well for that. But it seems like the scope is totally different.

It does, there's no, you know, there's just, you will never have the kind of magnitude of a company and maybe that thing. just won't be possible. I don't know, right? It may well be that this is one of the things that comes from decentralization. Microsoft got as big as it got because it's a mammoth centralized entity. And that, in my opinion,

was not a good thing for the information technology industry as a whole. It stifled innovation to a large degree for a long time. And, I mean, if we look at it, just to take that example, OS2, which is a much better implementation in many respects

than what it was up against at the time. And yet Microsoft through the ability to leverage its industry weight using anti-competitive tactics basically beat it out of the market. Now, and it's not just

some random startup we're talking about, it's IBM who are peddling OS2, a massive, massive company. So, centralization as a whole yeah sure we might not when we decentralize things we may not see centralized entities making quite as much many as they

as Microsoft and Apple have done but I wouldn't say that's necessarily a bad thing and I certainly wouldn't wouldn't say never either I think it's we will see a lot more of the Red Hat model and a lot more of the Mozilla model for sure but

you never know there may yet be some more Microsofts and Apple can you talk a little bit about Ethereum as an organization about the state of the development how many people for example let's start with that how many people are working paid full time on Ethereum today

I believe the figure is around 15 to 20 I guess the fundraising is still going on so you don't know how much money there will be but when you expect that to be six months from now I this well you're exactly

right in that the fundraising is going on so we just don't know but if the fundraising doesn't make more than

8 to 10 million then dollars then it's very likely that Ethereum will become a very very slim organization indeed or slim within today

considerably yes and there will basically all of that money will go to two separate organizations, the CCRG, a research group in cryptocurrency, and dev, which is to say a organization directed by myself, Vitalik, and Jeff, the Go developer. And it will be up to us three to create basically what I've just told you, the Web 3 something. So along with a bunch of other developers, and I would hope in six months, that we'll have, you know, we'll have scaled to maybe 15 or 20 full-time developers, a couple of administrators, a couple of nice hubs,

and one or two people involved in education and communication. Well, Gavin, thanks so much. I hope, you know, people will check out with Ethereum, and I hope we will see a lot of really exciting things coming out of the project. Thank you, Brian. Pleasure to talk. So I hope that gave you guys a bit of an impression of what Ethereum is, what the platform's goals are, and where we are kind of in the stage of the development.

A lot of people are extremely excited about Ethereum. They think there's huge potential, perhaps even as big as Bitcoin itself. I don't know if that's true, but I'm also excited about the platform, and I'm extremely excited to see where Ethereum goes in the future. I want to talk about something that many people probably heard about, and it's one of the most important kind of milestones in the development, of Ethereum, and that's the ether sale. Now, the ether sale has been going on for about two weeks, almost two weeks,

and it's going to go on for another 29 days. And I want to talk a little bit about how to think about the sale, and if you're thinking of purchasing some ether, so you'll have some kind of guidelines of understanding whether this is a good idea or not, and what the risks are and what the potential rewards are. The first thing I want to touch on before we kind of dive into the specifics is something really funny. So if you go on the Ethereum platform, website to Ethereum.org and you click on Buy Ether,

they have this long terms and conditions thing. And when you read through it, they talk about, you know, you have to declare that you're allowed legally to buy products of a Swiss origin. It's like, why is that product of a Swiss origin? So I kind of want to talk briefly about why they do this. and the legal side of this. Now, there have been quite a few projects in the Bitcoin community that have done things they've called IPOs.

So they've sold these kind of securities or shares, or at least they, it's what they called it, you know, on Bitcoin talk forums or on their websites and different campaigns. And it's quite important to realize that most of this is illegal. the selling security selling shares is a very very regulated area and one thing that you're not allowed to do in general is to sell shares or to offer shares to the general public so I cannot just we cannot just go on our website and say hey here's this bitcoin address anybody who wants

can buy epistle of bitcoin shares and you know you're going to get like express of future profits. So that's illegal. You can't do that. You can only do that. You can only sell it for accredited investors. It's a complicated area. But Ethereum is doing something a bit like that,

but they can't call it selling shares because that's illegal. So what they've done is they've created a legal entity in Switzerland in the canton of Tsuk. And they found some way with the local authorities there to conduct. this ether sale in a way that's not illegal. And the way they've done that is by saying that you are not buying securities, you're not buying shares of the Ethereum project of the company, but you're buying a product. You're actually pre-ordering a product, and the product in this case is Ether, which is the

currency that's going to be used on the Ethereum platform. Now, kind of economically, this doesn't really work like buying a product, it's not a typical product pre-order, it's actually much more like a share. But I want to sort of, I wanted to get this out of the way. So if you see people, especially the Ethereum team, you know, they always talk about, hey, this is a product. Now, they have to legally have to do that because otherwise they would be violating the laws. But as an investor, it's important to understand the kind of economics are going on here and they're much more like a share. So let's talk about what Ether is going to be used for.

So in the future, there's going to be this Ethereum platform. This Ethereum platform will be used to run decentralized applications to execute these contracts, have them executed by decentralized networks of computers, of miners. Now, if I'm going to put in a contract there and it's going to be executed by all these miners, then I have to pay for that. Of course, that makes total sense because if I didn't, then I could just spam the networks, give it all kinds of pointless contracts, and people get angry, and, you know, you'd have, like, useless computations running.

And, of course, you also need to have an incentive. You have an incentive for miners to actually provide their hardware, their bandwidth, etc., and essentially maintain the Ethereum network. We also have a similar security thing that you need to have a certain mining power, otherwise it may not be as secure. So Ether is going to be used for me as somebody who writes a contract, for example, to pay for it to be executed by the network. Now, the way this kind of works is that if Ethereum is going to be really successful in the future, we assume that there will be a lot of demand for people to run applications, contracts on the Ethereum platform.

If that's going to happen, then there will be a lot of demand for Ether because you need Ether. to run your application, execute your contract. So the kind of basic economic dynamics that are going on with the ether sale is that if you buy some ether now and if you're going to be really successful in the future, you will be able to sell it at a higher price, hopefully at least, to people who want to run these applications.

They need them, right? So you can think of that perhaps the demand for running these applications just going to explode and, you know, ether is going to become much, much more were valuable because so many people want it. That also, of course, means that computations will become cheaper per ether in the future. So is this a good idea? Should you buy some ether?

I think the really important thing to understand is the kind of dynamics we have going on here in terms of how many people are investing in the project and what ownership are you going to have of the project. essentially what happens is the more people buy ether currently about 12,000 bitcoins worth of ether have been bought, but you know, this could increase. So the more people, the more bitcoins people put into this project, then the more ether are going to be created. Of course, in the future, right, if you think five years down the line, that means that

if there's some amount of demand for ether, if twice as many ethers have, ether has been created, that means the price of ether is going to be half as much. So we have a basic dynamic that more people investing in Ethereum, more people buying ether dilutes your shares as somebody who also wants to buy ether. So in that sense, you could say that, um, it would say that, um, ideally, perhaps, assuming Ethereum is still going to be built and successful, you would want to be the only one buying Ethereum, ether. Of course, that's not the case, right? There's been hundreds or thousands of people buying ether, but you have this kind of dynamic

that the more people invest, the smaller the share of the total supply of ether that you own. Of course, there's another dynamic which you could say, perhaps it's more likely that Ethereum is going to be successful if they have more money, right? So if they raise no money whatsoever, assuming that, and they wouldn't be able to finish the code, then perhaps that would be terrible. So we want a certain minimum level of investment and perhaps the more they have, the better they can make the platform, et cetera. Now, this may be going on to some extent. It is certainly going on to some extent. I know they will do things with it, more ether they have, but I think it's actually quite limited. In my personal view, I suspect that

kind of regardless of how much more ether they're going to sell, the current level of funding they've gotten is enough for them to develop their platform, and then it's just going to kind of be up to the competition, how well it works, et cetera, how successful it is. So that kind of dynamic of, you know, you're wanting to have more investment. So the platform is even better. I don't think it's so strong here. So if you look at it from that perspective, it's actually a really good idea to buy at the end, right?

To buy after everybody's bought already or after most people bought already. And so you have a good idea of what actually are you getting? Because if you bought some in the beginning, you had absolutely no idea, whether you would now own 0.0.0.0. 1% or 10% or what percentage of ether you would end up owning in the end. Now, the interesting thing is that tomorrow, so that's Tuesday, August 5, the ether price is changing. So right now, if you invest in ether, you get 2,000 ether for one Bitcoin. But on Tuesday, this is changing and it's changing to 1,970 ether.

So essentially the price of ether is increasing and you get less for your Bitcoin. Now, the consequence of that, of course, is that most people who want to buy ether will do so before that date. So if you buy on that date or maybe the day after, you will have a lot of information then. You will basically have a really good idea of how many people are investing in the platform and you have a good idea of what percentage of ether you will own and even down the line what you will own. Now let's talk a little bit about the sort of monetary dynamics that are going on with you.

If you think of Bitcoin, a really crucial thing that has driven the value of Bitcoin has been that idea or has been that Bitcoin is limited, right? There will never be more than 21 million Bitcoin. So if you think of it, oh, but let's say the way. world adopts Bitcoin, it becomes the world's reserve currency, then those 21 million Bitcoin have to be enough to satisfy this huge amount of economic transactions, of reserves, of wealth held and Bitcoins. So the only way for that to happen is if one Bitcoin becomes really, really valuable.

So I think this has driven a lot of that development in Bitcoin. A lot of people have gotten into it because of that, because they understand that. And of course, also currently the value of Bitcoin, right? we were at something like seven, eight billion dollars. You know, that's really driven by that. It's really driven by the expectation of the future value. Now, we have a similar, but somewhat different dynamic. So, if a certain number of Bitcoin are invested,

so let's just say it stays at the current rate, which is 12,000 bitcoins. that means that 24,000, 24 million ether will be issued or will be given to the people buying ether, people investing here. Now, in addition to those 24 million, what they will also do is they will create 20% more of that. So that's, you know, two times 2.4 million ether. And those will be split.

So 2.4 million. will go to the founders and 2.4 million will go to a foundation. Now, the founders, of course, these are people like Vitalik, Gavin, who've been working on this for months, who've been kind of full-time diving into this

for, I guess, up to about nine months or something like that in the case of Vitalik. So those, you know, they haven't gotten paid for the most part. So they will get some of that ether, basically for to pay for their work and I think also to pay for their work going forward. and give them sort of an incentive in the project.

Another 10%, so another 2.4 million, assuming it stays at this current level, will go into a foundations, and that foundation will be used to pay developers and other staff in the future. So essentially that means that you are slightly diluted, right? Slightly more ether are actually created than are being purchased, but it's not crazy, right?

It's 20% more. And the other thing that happens afterwards is that every year, 26% of that amount that's purchased by investors during the fundraising period are mined. So let's say it stays at 24 million. That means that at 26% every year are mined. So that's 6.2 million ether. And that's going to be the case forever, right? So every single year, 6.24 million our mind. So, of course, that means that your share of the total amount of ether is going to go down every year.

And, you know, in the end, at least a thousand years from now, it's going to be pretty close to zero. But in the sort of near term, it's going to be higher. This is, if you compare this with Bitcoin, we have a slightly different dynamic. With Bitcoin, we have a decreasing inflation rate. So we had, you know, 50 bitcoins per block in beginning, then 25. It's going to go to 12.5, 6.25, et cetera. Now, with Ether is constant, right, it's always 6.24 million per year. I don't know what that translates to per block.

I don't know if that's been figured out. But so it's not as deflationary as Bitcoin, but nevertheless, right, 10 years down the line, a lot of ether will have been issued, and it's still 6.24 million that are mined that year. Now, of course, that's a much smaller percentage of the total amount of ether that's been issued than next year, right? So in the first year of operation, essentially the inflation rate's going to be about 25%. And that's going to decrease every year until it goes also tends towards zero. So the kind of point I want to get you here is that Ether is sort of deflationary, right?

So, I mean, it has an inflation rate, but it decreases. It doesn't do so as rapidly as Bitcoin. And so it's perhaps not as attractive from that perspective as Bitcoin is. But I think it still has that dynamic that if a lot of people are starting to use Ether, it's not like the ether supply is going to balloon. No, it's independent of how many people are using Ethereum. So you do have that dynamic that if Ethereum is successful, we will see a dramatic price increase, at least hopefully.

There are a few more things I want to briefly touch on. First of all, I think it's quite similar to purchasing Bitcoin in many ways because we have a similar dynamic, right? It could become a really big platform, could be super successful, which would increase the price. One important difference, of course, is that if you still hasn't been issued, right,

there's no, like, there's no working client. I mean, they have a test net. They're testing it, but it hasn't been sort of tested in the real world when real money is at stake. This means less proven than Bitcoin, right? It could be flawed. Perhaps we'll find some terrible thing in there

that just can't be fixed. So in terms of a risk level, the risk is obviously higher than Bitcoin, and I would say it's much higher than Bitcoin. So that's something to keep in mind. Of course, at the same time, we could also say the valuation is going to be very different, right? Today, sort of the value of all the Bitcoin's in circulation is about $8 billion. I don't know how many what kind of an investment level the Ethereum people will get, but it's going to be way, way, way less than that. Now, does it make up? You know, is the kind of increased risk and the better price you get?

Is that a good deal? I don't know. I mean, you have to figure that out. But at least fundamentally, that dynamic is there. What's also important to realize is that Ethereum is an open source project. So all the code is going to be public. It's going to be on GitHub. People can take it, can do whatever they want with it.

Just like with Bitcoin, right? People have cloned Bitcoin. They've created light coin, dogecoin. and all kinds of other things with it. The same thing will happen with Ethereum, right? The same code will be there and you can make other projects. I know it actually has already happened, even though the life client's not out yet.

There are people who basically want to do Ethereum, but instead of the money being owned by the people who purchase ether, the money is just going to be given to all the Bitcoin holders. So that's a risk. as an effort, as somebody buying Ether, of course that's a real risk, right? So because it could be that the platform is developed. Some people take it, maybe the most successful with it. But then your Ether can be used in that platform.

And they become totally worthless. So that's a real risk. And it's something to be aware of. I think there's one big factor that Ethereum has kind of going for it. And that's something called network. effect. So a network effect is essentially the idea that the bigger something is, the more powerful it becomes and the more efficient it becomes. Now, money is like that, right? The more people use money, the more useful it becomes. Now, that makes it really hard for somebody who just

shows up new and start something small to become big, because the big currencies have an advantage already because of their size. Now we have similar things in other areas, let's say Facebook, right? So if you want to be connected to everybody, of course, it's much better if a lot of people are already on the platform. That makes it hard for somebody from scratch to start a new social network because nobody's on there. Nobody wants to use it. It's not as attractive. Now, we may have something similar with, we may have something similar with Ethereum and we have something similar with Bitcoin, right? So with Bitcoin, the more people use Bitcoin, the more attractive it is, the more

useful it is. And with other currencies, we generally don't have the size of community of applications, etc. Now, with Bitcoin, what we have seen is that even though lots of people have cloned Bitcoin, afford Bitcoin, have done sort of new Bitcoin variants, overall, they haven't been super successful, right? Bitcoin is still, if you look on coin market cap, you can kind of see what's the total value of Bitcoin

or of, you know, of all the cryptocurrencies, of the total value of all the cryptocurrencies. And I think the last I checked, it's about 93%. So it's pretty high. So you could say that all those people copying Bitcoin hasn't probably not affected very much to Bitcoin price. With you through, we could have a similar situation. We could have the situation that a lot of people developing applications on the Ethereum

platform. And because of that, the Ethereum platform is attractive and valuable and has these network effects that it's much more possible to do a new application on there because service is already there. And that makes it harder to just clone it and create something new and compete with it. Now, I personally think that these network effects will be present with Ethereum. So that is something that will protect Ethereum, but of course it's no guarantee. It could absolutely happen that in the end somebody just takes Ethereum,

takes the work they've done, clones it, and maybe that's going to be more successful. I know one proposal I'm actually, one project, I find really interesting side chains, which is essentially the idea that you allow this kind of innovation

that Ethereum is trying to do, but using the same monetary basis, Bitcoin. Now, I'm sure somebody will try Ethereum on a side chain, and if that happened, it's possible that the ether wouldn't be used there and they would lose value. So it's a risk to keep in mind. So I think that kind of comes to the end of it. I guess one thing I should interject here, which is that because Ethereum is not live yet, you can't actually buy Ethereum now. essentially you put in

bit coins and you get a wallet or you get some file that once the Ethereum TestNet, once Ethereum, the real thing is live, you can kind of import it and you get your Ethereum balance.

So also means you won't be able to trade it, right? So if you buy some Ether now and you don't want it anymore, well, you're going to have to wait until the actual client is out until you're able to sell it.

So, yeah, that's also kind of something to keep in mind. So I hope that gave people a bit of, a bit of ideas of how to think about this ether sale. My personal view is that it has a lot of potential, and of course, he has a lot of risks. So I think personally, I feel like it makes sense to take a basically small portion of, you know, my Bitcoin holdings and put it into ether. But I also think it would be very foolish to say, oh, you know, this is better than Bitcoin.

so let me sell all my bitcoins and buy ether. I think that that would be a not a very prudent idea and extremely risky. So I guess I should also add a disclaimer because, of course, I don't want anybody to come to me and tell me, oh, I was wrong, or blame me if something goes wrong. And that is, please do your own research. Really look into this, look into Ethereum, think about whether this makes sense, and then be prudent and make sense.

and make your own judgment. Also, one thing to really keep in mind, and you should put a kind of high priority on that, is to keep, like, make sure to take all the necessary security precautions when you actually buy ether, you know, if you choose to do so. Because, of course, if you lose the file, or if it gets stolen, or if you don't use good password for encryption or something like that, it's possible that you lose them.

and of course that would not be desirable. So it's important to kind of do some research on that and be sure to store them in a secure way. So I hope that was interesting and helpful. So, you know, once again, be careful, make your own judgments. But, yeah, I'm really excited to see where this is going. Of course, all these things have been talking about may not be so well for you. If the reason why you want to buy ether is just to support the project and support the

work they're doing, I'm sure some of you will be driven by those motivations. And it's really important. I think that this infrastructure gets built, you know, regardless of the financial prospects of the people purchasing ether. So thanks so much for listening today. We hope this was interesting for you. I hope you learned a bit about Ethereum and about the kind of either sale that's going on and about all the exciting things that are waiting us down the line with Ethereum and with other projects that are trying to take that amazing innovation that was accomplished with Bitcoin and with achieving a decentralized consensus and that are applying to a much broader range of issues. Thanks so much for listening. Now if you want

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