Unchained - Vitalik Buterin on Ethereum's Five-Year Anniversary - Ep.183

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Starting point is 00:00:41 September. Download the crypto.com app today. Today's guest is Vitalik Buderan, the creator of Ethereum. Welcome, Vitalik. Hi, Warren. Nice to be here. First of all, congratulations on the five-year anniversary of Ethereum. Thank you. Yay. So glad that we're finally here. So something that's really funny is you and I did our last interview a little over a year ago. And afterward, this was for the live event I did in New York. One of the attendees wrote me and yelled at me saying that because I asked you tip questions that you would never do an interview with me again.

Starting point is 00:01:20 So I'm happy that we are proving that person wrong. Yay. So upon the five-year anniversary of the Ethereum Network, live. What are your main thoughts and feelings? I mean, Ethereum's definitely come a long way in the last five years, and it's definitely been really striking to just

Starting point is 00:01:41 see the change, just see how much change there has been, and even just see how more and more of the change is just outside of mine, even outside of the Ethereum Foundation's control. So, like, if you remember Ethereum in 2014 and

Starting point is 00:01:58 2015, it was this much kind of smaller titernate community, everyone who was doing anything important and knew each other and was coordinating really closely. There was myself, there was Gavin, there was the developer team, there were Vlad,

Starting point is 00:02:14 some other people and everyone was very closely talking to each other. And then just kind of over time there just started to be more and more people coming into the community, right? So I remember DefCon 1 in London was this big, kind of coming out party for Ethereum in a lot of ways.

Starting point is 00:02:32 And that was when Microsoft announced their cooperation with Ethereum for the first time. And like that was huge, right? Like in 2020, it's like, you know, okay, it's another bank, another software company doing something. But in 2050, it's like, whoa, you mean a big software company is doing blockchain things? And, you know, since then there are a lot of these different banking groups doing things. on blockchains, there have been a lot of just independent individual projects that all have their own stories. You know, Auger is pretty big and has its own story.

Starting point is 00:03:11 Maker is quite big and has its own story, as do all of these other kind of sub-communities within the Ethereum ecosystem that are, at this point, even themselves bigger than Ethereum was five years ago. And so just sort of seeing that expansion and just continuing nonstop, you know, going from 2014 is 2016 and then the big you're going to bubble and then even past the bubble right like the hype died down but i think the communities continue to expand in a lot of ways and just seeing that happen has been incredible and seeing the technology progress has been incredible seeing things like a proof of stake progress from being you know not sure if they can even work to an idea to a white paper to a spec to

Starting point is 00:03:56 now a public multi-client test network has been wonderful as well. So, you know, lots of great things are happening. And I'm very happy that lots of great things are happening. I solicited some questions on Twitter. And there was an interesting one from someone whose handle was Mr. Kim Crypto. And he said, what would you change if you could do it all over again? There's definitely like a lot of little things. And in some, like, some, of them are technical little things like using a binary tree instead of a hexery tree and there's like 50 different things like that that sounds really boring but if we did them we would have been like a year or closer to our theory M2.0 by now but aside from that there's also

Starting point is 00:04:45 kind of social things and in a lot of ways the social things are in the more interesting things right so things like for example just the way that the project started and the history of starting off with this kind of big and heavy development team that's like as opposed to kind of starting with a smaller kind of more development focused effort. That was one of the things that I might have done differently. And wait, the distinction you're making when you said big and heavy development team, did you mean the business side? Yeah, yes.

Starting point is 00:05:19 Oh, okay. Yeah. So big and heavy, not just development team. And I think, for example, the grant program has been great, and we could have been in a much better place had we started that like two or three years earlier than we did. So there's a lot of things that the Ethereum Foundation has been doing over the last two years, as in many ways been. They're just kind of correcting for some of the things that we did in the years before that

Starting point is 00:05:48 and just trying to fix all of the mistakes. and had we known that and everything that we know now, then of course, then we would have just started doing the correct thing from day one. Aside from that, I'm sure there's lots of mistakes that we're still making, but sometimes you don't know what the mistakes are, you know, because if you knew what the mistakes are, then you would find a way to stop making them. Right, right.

Starting point is 00:06:16 And so let's talk about an issue right now that a lot of people are talking about, I'm sure you're well aware that one of the chief complaints at the moment is the high gas fees. What do you plan to do about that and what solution do you think would be best to bring them down? So ultimately, high gas prices are just a function of high demand, right? Like lots of people want to send Ethereum transactions on the blockchain and there's not enough space for them. And so people just keep outbidding each other trying to be the ones that get in. So ultimately, there's only two ways to get gas prices down. One is to get people to stop wanting to use Ethereum, and the other is to find a way

Starting point is 00:06:57 to increase the amount of space. So first of all, I should say, the first one is slightly less ridiculous that it sounds, right? Because there are specific cases where people are using the Ethereum blockchain in ways where they don't really need to be using it for every single thing they're using it for. So even just to give one example, just a lot of. the defy arbitrage things that are happening. Like, they involve people sending lots of transactions and some of them getting on chain.

Starting point is 00:07:25 And a lot of the time, just the transactions they get on chain are transactions that just don't do anything because they're not the first to get in an erase or whatever. Right. So, like, that kind of category exists. Like, there is a lot of room for applications to, and it increased their efficiency. Sometimes it even involves moving things off chain and all of these things. And I know that application teams are definitely working really hard on that. But at the same time, the more interesting and long-term viable thing is obviously increasing scalability.

Starting point is 00:07:57 And scalability is the thing that we've been talking about for more than five years. And like every major Ethereum presentation from me you can find. I probably mentioned scalability. And, you know, big problems we're working on, privacy, scalability, user experience, security. What did I forget? Something? Scalability. The difference now, of course, is that instead of just being this kind of far-away theory thing, it's this very short-term necessary reality that we have to find a way to work around.

Starting point is 00:08:31 And the good news is that a lot of the scalability solutions are much further ahead now than they were at any time in the past. So Ethereum 2.0 is, of course, the big one that people talk about. And we talk about proof of stake, which is coming very, very soon. But then there's sharding, and sharding is phase one and not phase zero. So sharding is going to take a bit longer than the launch of the EF2 blockchain by itself. So EF2 is, of course, really important to be big. But at the same time, it is farther away than some of the other things. But the good use is that there are these other enclosure things in the most.

Starting point is 00:09:10 pipeline, right? So like roll-ups are one thing that I just mention all the time, right? Roll-ups being this kind of really wonderful scalability technique that basically says instead of doing everything on chain, you just put a very kind of minimum and compressed amount of information on-chain that just basically tells people how they should update the states, so how they should update kind of the internal record-keeping of this roll-up system, you know, who has how much money in the roll-up? And then instead of put in things like signatures, for example, on chain and verifying them on chain, you just have one zero-knowledge proof that just says, here's a proof that these thousands of signatures exist. And I'm not going to tell you what the signatures are, but, you know, here's a proof.

Starting point is 00:09:54 It says that they exist. And because of the cryptographic proof, you can now trust that these transactions are all valid. Or alternatively, you can combine all of these trans signatures together and it adds them all into one big signature and then say, you know, if any, you know, if any anyone can prove that this block is invalid, they can submit a challenge, and only if there's a challenge, does any computation happen on chain? Right. So in the first family I talked about is the ZK roll-up. The second family I talked about is the optimistic roll-up. They both made a lot of progress, right? So like ZK roll-ups are already live on Ethereum. So, you know, he saw loopering the decentralized exchange. And it's this Chinese Ethereum company. they've been just putting out this decentralized exchange and it's basically just a system of Ethereum contracts,

Starting point is 00:10:45 and it's been running for a while, and it's worked great. ZK. Stink, the one from Matter Labs. So both of those exist, and you can use them. They both even have built-in payments. So I think for ZK, roll-ups, the challenge is that it's, like, people love Ethereum because Ethereum lets you go beyond just. moving coins around, right? Like, if you just want to move coins around, then, like, you know, whatever, there's, like, MasterPoint or, like, SLP on Bitcoin Cash or, like, any other of these things, right? Make the true power of Ethereum is that it's not just about that. It's

Starting point is 00:11:21 also about all these other things. And so, like, moving coins around is a big part of what people use Ethereum for, but if you want to expand beyond that, then, like, zero-knowledge proofs are not yet friendly enough for that. In the future, they will be, right? But we're still couple of years away. So that's one problem. But if you just want to move coins around, then like the only challenge is that we just have to get all of these, you know, wallets and exchanges and teams kind of to just work together and adopt a thing. Well, one thing I wanted to ask was earlier when you talked about how the high gas fees reflect high demands, Alex Mazmadge, who he's the guy who's selling shares of himself via a coin. He had a question, which was what percentage of

Starting point is 00:12:06 Ethereum block spaces used for valuable actions versus bad ones. So I'm curious what your thoughts are on that. figuring out what's actually valuable is such a tough thing, right? From one standpoint, you could argue that anything that people are willing to pay a 50 way per gas for is valuable because, well, by paying that transaction fee, they clearly say it's valuable. But on the other hand, there's a lot of activity happening that's like clearly involves, you know, these zone of competitive games between different people, like just, like, even, you know, DeFi arbitrage where everyone's just sending a transaction on chain and a lot of them end up failing and it would be nicer if that entire, you know, basically what's happening there is kind of like an auction

Starting point is 00:12:53 between all of these arbitrageers. If that could happen more efficiently in some way, then you really could clear out a lot of Ethereum blockchain space and that wouldn't actually hurt anyone. There's a lot of cases like that. And then there's obviously applications on the chain that people just might think are outright bad. So, you know, Ponzi's are one example and there's always a couple of them somewhere. So it's complicated. And I definitely think that the great majority of the activity, is valuable and not the sort that you can just kind of remove by coming up with a slightly better game in some way.

Starting point is 00:13:41 I don't know. It's hard to say. One of the disadvantages of an open system is that you just get all sorts of characters from all around the world building things on it, so it's hard to tell. And speaking of complexity, let's now talk about Ethereum 2.1.2. 0.0, which, you know, just for me, somebody who spends a lot of time trying to figure out how to convey things to other people, especially when it comes to this space, I find it quite complicated, and I believe that it would be something that would also be complicated for validators to understand and for them to make a cost-benefit analysis, and in general for them to assess what their risks are. And it reminded me a little bit of how defy composability introduces a lot of risks, because protocol creators can't always foresee what other protocols will introduce.

Starting point is 00:14:33 And so I just wonder, do you think that complexity of Ethereum 2.0 does create a risk for the security of the network? It definitely does. And that's the big part of the reason why we've been working really hard to try to make the protocol simpler. I definitely think that it's twice as simple now as it was a year and a half ago, which has been a very significant sign of leap for us. But at the same time, there's definitely complexity that's unavoidable in some ways, right? Like, you know, if you have a regular blockchain, that everyone's just validating everything. If you have a sharded blockchain, then you need some kind of rules for figuring out,

Starting point is 00:15:11 you know, who's validating what blocks at what time. And that's just like more code that has to be in there that would it be in there if we weren't charting and there's no way around it. even in my proof of stake, for example, like one of its disadvantages is that it's definitely a bit more technologically complex because, like, you have to deal with validators, you have to figure out, like, what's the process for validators logging in, what's the process for validators logging out, and there's a lot of just kind of management happening in the protocol. So that definitely does exist, though at the same time, I do think a lot of it is just the fact that people are less familiar with a proof of stake, and so it feels more like an unknown unknown to them. What actually is the chance of something as crazy is going to happen on Chan? I don't know. It's like how many people are actually going to be willing to validate at the interest rate of 9%?

Starting point is 00:16:07 I don't know. So these are the sorts of. of things that, like, unfortunately, you just can't make answers to until you have a live running system. So, like, I think it's perfectly fair for a lot of people to just kind of say we're sitting out of the thing until for, it just runs by itself for one and two years, and that's perfectly fine. There are so many things I want to discuss around this, but let's maybe just talk about Eith price at the beginning, because one of the things that I gleaned is that the security of Ethereum 2.0 will be highly reliant on the stability and the value of the price.

Starting point is 00:16:41 And historically, Ethereum has not been one of those crypto networks that has focused quite a bit on price, especially compared to some of the other coins. So I wondered if he thought that staking will usher in a new era in which Ethereum does focus on the price of ETH and on issues like monetary policy. It's hard to kind of figure out what concrete action could reduce price volatility, for example. And if you look at Ethereum versus a lot of these other. Like, Ethereum's price volatility is not necessarily that high. Like, it's statistically definitely higher than Bitcoin, but it's lower than a lot of these other

Starting point is 00:17:21 smaller cryptocurrencies and even the ones that say, you know, rah, look, we have a fixed cap. And so you should trust us more. So, like, there's some aspects of kind of monetary properties of EC assets that just can't be engineered no matter how hard you try. There are other aspects that, you know, you can look at, right? So, like, one of the big, you know, discussions happening in the Ethereum community is this kind of fee market reform debate around the EIP-159. Where basically it's this kind of very significant proposed reform to how a transaction fees work that basically says that instead of having a fixed block size and the kind of transaction fee is constantly jumping around, you would have. have a very short-term variable block sizes and the transaction fee would be kind of stabilized

Starting point is 00:18:14 more and it would not move much between one walk to the other. And there's a lot of reasons why this would improve economic efficiency. But one of the other things that it does is it basically means that some portion of coins and transaction fees get burned, which of course means that, you know, it reduces issuance and potentially like if there's enough transaction fees, it could even give east negative issuance, right? So if you even look at the transaction fees on the Ethereum network the last two weeks, it's been somewhere between, like, 2,000 and 5,000 ether per day.

Starting point is 00:18:49 And if you kind of expand that out to per year, then it's looking like, well, 700,000 to like 1.7 million ether a year, which is higher than the proof of stake issuance that we're expecting, right? So it's actually, I mean, negative issuance is not even far outside the realm of possibility for Ethereum. And there's a lot of people in the Ethereum community that are excited about this and that is sort of actively want us to start, you know, talking about monetary policy, taking monetary policy seriously and all of these things. And which is interesting. And it's also kind of a sign of the project's decentralization in some ways. Like that kind of push towards taking ETH's monetary properties more seriously.

Starting point is 00:19:44 It was definitely not an Ethereum foundation thing, right? Like it was just these community members that just like stood up and said, you know, hey, we have EIF and ETH is an asset. But you should care more about ETH the asset. and they're kind of not talk as though the price doesn't matter because the reality is that if the price goes down by 90%, then we go bankrupt and realistically the platform security goes down and the platform breaks. And that would be true in proof of work or proof of stake, right? Like in proof of work, if the price of use drops by a factor of 10, then suddenly the Ethereum proof of work miners would have to go and compete with, you know, Ethereum classic and Doge coin and all these other coins. and like when a coin stops being the dominant coin within its kind of class of proof of work hardware,

Starting point is 00:20:31 then it becomes much easier for miners to come in from the outside and attack it. And so really, price has always been a blockchain security concern. It's just people are more willing to talk about it honestly now than in the past. And what about you? What camp do you put yourself in? Because you sort of talked about it as if you are not in, in that camp of wanting to place an emphasis on it. But the thing is that, I mean, okay, so you have your role at the foundation, but you also have your role as a researcher. And I would imagine

Starting point is 00:21:03 as a researcher focused on security, you would recognize that price is a linchpin in the security of Ethereum 2.0. I definitely think price is important for security and is important for a lot of things. I mean, I think maybe one kind of difference in emphasis is that, Like, if you have ETH and you're interested in, like, basically, ETH as a kind of get rich asset, then you care about, you know, the chance, the probability that it goes up to 10,000. But if you care about the value of ETH for network security purposes or even for making sure the ecosystem continues to have funding or for, you know, just like plain old, the kind of stability to ensure the utility of EFs, then the thing you care more about is the price. he's not dropping to zero. Those are two kind of somewhat different kinds of caring about the price, right? Like one focuses more on, you know, maximizing the upside and the other focuses more on

Starting point is 00:22:03 just minimizing downside risk. So, I mean, I think there is definitely a kind of convergence of goals there between, you know, people who hold East because they wanted to go up and people who, you know, realize that E is having value as necessary for security, but there is also in of this other divergence. well. But in practice, I don't think it ends up causing that much of a disagreement. And so it sounds like ultimately you think the monetary policy for ETH will be variable. It sounds like sometimes it will be deflationary and sometimes it will be inflationary and it just sort of depends on what's happening with demand on the network.

Starting point is 00:22:49 That's definitely their current past. And I mean, this is definitely. also been another one of the kind of big debates for us. Like, on the one hand, you know, we recognize that there's kind of mean value when having a cap. And, you know, there's the value in being able to say, you know, the price will or the market cap, the token supply will never go about $150 million. We're going to go not one step backward from here. And even going, going out and saying crazy things like if the Ethereum protocol ever changes, so there's more than $150,000, million ether, then it is no longer Ethereum. These things that coin supply maximalists say, which are obviously false, but

Starting point is 00:23:32 kind of motivational at the same time. And like we are, posture has always been to kind of not go in that direction. Basically, our kind of line is that, like, ultimately there's a tradeoff between stability of the coin supply and stability of the security level of the blockchain. And ultimately, Ethereum isn't a coin first. It's a worldwide decentralized technology platform first. And so security, a stability of the security level is more important than stability of the coin supply. And at the same time, like, we definitely kind of recognize what we're missing out on by taking that task.

Starting point is 00:24:12 So, no, it's a difficult question. I think, like, the communities have views and, like, my own and a lot of people's views are definitely still kind of influx on this. Yeah, and earlier when you talked about how right now you are making these theoretical assumptions about what will happen with Ethereum 2.0, but ultimately you won't really know until it goes live. I saw that you read this economic review of Ethereum 2.0 that was put out by researchers at consensus. And in that, they assert that the cost of perpetrating attacks on Ethereum 2.0 will be lower than an Ethereum 1.0. and they advocated that there be a minimum of 13.8% of the network supply of ETH be staked. And afterward, you tweeted that you disagreed and you thought it didn't need to be that high. And so it strikes me that, you know, you admitted earlier you really don't know,

Starting point is 00:25:07 but wouldn't it be kind of better to err on the side of caution in this case? So, like, I feel like we have strong kind of outside of you arguments to, for why attacking a proof of work chain should be much, or sorry, attacking a proof of stake chain should be much more expensive than attacking a proof of work chain. Right? The outside of the argument basically is that, like, if you look at what a proof of work mining rig does, it mines, and it mines for maybe one or two years, and then you have to buy another one.

Starting point is 00:25:36 And even while it's running, you have to pay for a lot of electricity and you have to do a lot of maintenance. And so the cost of a mining rig should realistically target somewhere around. like one year, maybe one and a half years of issuance, right? Basically what that would, or the cost of all the mining rigs that are currently elder, rather, should target maybe a year or one and a half years of issuance, right? Because like that's roughly the time horizon within which those mining rigs are going to be actually working, a kind of subtracting out the electricity and maintenance and like a morsela and

Starting point is 00:26:10 all of those things. But with proof of stake, if you have coins, then like the coins aren't going to just bar after one and a half years of staking, right? Like after one and a half years of staking, you can just get your coins out again. And so we should expect the ratio between the cost of the backing assets and the cost of the rewards

Starting point is 00:26:33 to be much higher in proof of stake than it is in proof of work, right? And that's something I told them. And that's something that... I remember when I did my own... and of quick calculations on, and of the cost of proof of work A6, I definitely got a number that was substantially lower than theirs. But, I mean, I don't know.

Starting point is 00:26:57 It's definitely kind of a puzzle, like, what's in that analysis. And I definitely be happy to just talk to them more and just see how to kind of get these different perspectives to line up with each other. Yeah. And one other thing that I wanted to ask about was, and maybe this is just me not knowing the system that well. But when I was reading their economic review, it seemed that in most situations, staking would be profitable. But at low prices, the net yield for stakers does go into the negative. And I wondered if there was some mechanism that's similar to the difficulty mining algorithm

Starting point is 00:27:34 in Bitcoin that then makes staking more profitable if it goes, if the net profit goes into the negative so as to incentivize more people to stake and push the price up. Because otherwise, it just seems like then you could end up in these like death spiral type situations. Right. I mean, it's a challenge, right? Because if you respond to prices dropping by increasing the issuance rate, then you risk entering into another kind of death spiral, which is like price goes down, print more coins, price goes down more, print goes both coins, and you get, you know, no, Ethereum goes the way

Starting point is 00:28:13 of all of these hyperinflating fee outcurrents. And so, look, we definitely don't want that, right? And I think, like, the challenge with that sharded blockchains do have is basically that, like, if you have a blockchain where the capacity of the blockchain is, like, end times bigger than the capacity of one single computer, then ultimately you need to have at least end computers in the watch somewhere in the network for it to be able to process. with all those transactions, right?

Starting point is 00:28:45 And I mean, actually, you would need somewhere like more than n times 200 because you want redundancy, but like, you know, you get how you need at least an end plus like some factor, right? The problem, of course, is that in the worst case, if people stop caring about Ethereum and the size of the user community goes down to n minus one, then you're kind of screwed no matter what the mechanism is, right? So there's this kind of mathematical challenge here that they're going to charted chains do have.

Starting point is 00:29:11 And I think like this problem is actually one of the things that's probably going to end up putting limits on the capacity of a sharded blockchain. Right. Like so we're doing 64 shards with kind of an eye to pushing up to a thousand and twenty four eventually. And then some people might ask, well, why are you sticking with this kind of what we call quadratic sharding, just kind of two layer structure where you just have shards of shards of shards of shards? Like, why not just go all the way and have shards of shards and then go up to infinity? And the answer basically is like, well, if you put the number of shards to be really high, then if the size of the community drops to below what you were expecting, then the network can't really verify anything and you're kind of screwed again, right? Ideally, of course, what you would want actually is you would want a system that says if the price of the currency drops, then, like if the U.S. dollar price of the currency drops, then kind of dial down the capacity of each of these charts and try to dial down the number of charts. or whatever and to kind of scale down the size of the system, right?

Starting point is 00:30:14 But the problem is that it's hard for blockchain to have built-in price oracles. But, you know, it's hard to make for oracle kind of decentralized enough for a layer one. And so we have this problem where either a sharded system has to be kind of smaller than it otherwise would be, which is the path that Ethereum is going, or a sharded system has to kind of dynamically scale up and down with some metric of how big its community is. And the problem is that the blockchain has no way of measuring how big its community is because, you know, civil attacks and all of that stuff. So like the economic kind of price dependence is actually like basically a version of that

Starting point is 00:31:00 same problem, right? Like it basically says that, you know, if the price goes down a lot and so people are less I'm just interested in the Ethereum network, then the Ethereum network maybe no longer has the ability to compensate all of these people just for running nodes that are part of the chain. And we do have some ways of kind of partially dealing with this, right? So like, for example, one thing that would happen in that kind of scenario, like if there were low prices and people dropped out is that the amount of, of each stakes would end up dropping. And once the amount of each stake drops below a certain amount, like I think it's either $4 million or $8 million, I forget.

Starting point is 00:31:44 Then what happens is that the shards sometimes start skipping slots. So basically you stop having every shard have one block every slot. And so the capacity of the system kind of starts shrinking because of that. And so there is kind of a bit of this auto-adjusting mechanic that helps to stabilize the chain in that case. But it's definitely far from perfect. And there are kind of just fundamental impossibilities that we have to whack again. All right.

Starting point is 00:32:14 So in a moment, we're going to talk more about issues regarding proof of stake as well as DFI. But first, a quick word from the sponsors who make this show possible. The scorebed app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking, I want hot takes. I want knee-jerk reactions. That's not really what I do.

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Starting point is 00:33:43 Download the crypto.com app today and enjoy these offers till the end of September. Looking for a place to connect with thought leaders, innovators, and blockchain enthusiasts of every level, welcome to Ticoram, a weekly virtual series about all things Tazos. Each week will feature presentations about the latest advancement.

Starting point is 00:34:01 from baking and staking and developer tooling to defy projects and community content that will help the ecosystem grow together. This year, T-Quorum will be opening up its podium to you. If you're interested in presenting, submit your ideas, and the T-Zo's community will vote on who they'd like to hear from next. Sign up and learn more about the virtual series at T-Corum.com. Back to my conversation with Vitalik Boutarin. I also got a good question from Tarun Chitra of Gondland. network. And he pointed out that existing proof of stake networks have run into capital constraint issues for some of their validators and that some, you know, individuals in particular

Starting point is 00:34:43 find it unprofitable to be validators and they can't realize economies of scale without professional validation set up similar to what you'd get from Amazon Web Services. So how do you think Ethereum's proof of stake system can be more democratic? So I think there's two major differences in the incentive structure between a theorem and a lot of these other chains. Right. So one of them is that a lot of these other systems end up kind of implicitly making the assumption they expect the majority of their participants are a really, really huge number of participants to stake. Right. And they set the numbers and they try to basically create a situation where like 80% of people,

Starting point is 00:35:28 people are staking or 50% of people are staking or some other fairly huge number like that. And Ethereum is not doing that, right? Ethereum is basically targeting, you know, somewhere between 5% and 30% staking is the level that we're expecting slash wanting, with the one thing probably being a kind of a bit on the higher side of that, but no, if it's a lower, that's fine too. So that's one part of the response, right, which is that like we're explicitly expecting there to be. and fewer stakers than a lot of these other networks, and that's fine. The other part of the response is that our incentive structure is like deliberately designed to be very forgiving, right? So like

Starting point is 00:36:09 a lot of these other chains, they have staking incentive structures that basically say if you're online less than like 95% or 90% of the time, then like you start getting these penalties very quickly. And Ethereum is not like that, right? And Ethereum, you know, you can be net profitable even if you're on offline like 30% or potentially even 40% of the time. Ethereum is basically designed, at least in terms of its incentives, for kind of more immature stakers that potentially have their setups break more often. And that was a deliberate design choice. Like we're definitely not deliberately trying to kind of engineer for a high performance network.

Starting point is 00:36:52 Basically because, you know, if you engineer for a high performance network, then you risk creating incentives for everyone to start concentrating in the same cloud computing setups and then are you really decentralized? They're really censorship resistant and all of these things. So like in Ethereum, you know, we've made a lot of these conservative choices, like, you know, target the percentage online that we're targeting. I mean, even the test sets are like off, they jump between 80 to 95%, I think, whereas like I think Cosmos or some of these other networks,

Starting point is 00:37:22 they just constantly stay considerably above 95%. And in other places, the 12 seconds slot time, right? So Ethereum's a slot time, I think two slot time, it's 12 seconds. And in the future, I could see a decreasing to eight seconds or six seconds, but, you know, we're never going to go all the way to one second, whereas some of these other chains are. So, you know, there's a lot of these that kind of tradeoffs that we're making, where we are kind of definitely refused to, you know, satisfy a lot of people's needs for big performance. but I think the result of more resilience.

Starting point is 00:37:59 Okay, yeah, Tarun and his colleague, or actually I think it's Alex Evans, a placeholder. They wrote of a great post on how it's taking actually lends itself to the kind of securitization that looks very similar to mortgage-back securities. Did you see that post? I think I saw it, and I don't remember too well as a while back. Yeah, it's about just lending and, yeah, but I mean, it great. Granted, obviously, these products are more transparent because all this happens in a smart contract. But they pointed out these are the kinds of financial products that did lead to

Starting point is 00:38:33 the creation of Bitcoin. So we were curious what your opinion was on that. Honestly, I'm less worried about staking and more worried about existing D5. I mean, I guess the thing with staking is that, and I definitely would expect the kind of staking setup to just remain fairly simple because like there's well basically either you're staking yourself or you're giving your money to someone else who stakes for you and like maybe you can like sponge things beyond that and you could say oh here's a slight like a contract and it gives that 80% of the first 80% of the east to the holder of one coin and the last 20% which is much more in a performance dependent to the holder of another coin and then like you can concentrate to kind of a

Starting point is 00:39:20 ownership of these tokens that represents like basically interest in really high quality staking and all these things. But generally, like, I guess I'm not expecting the complexity of just that part to go too high. But the places where the complexity can go high is basically, if people want, either just a lot of the things that people are doing with existing these D5 projects. they're kind of trying to get leverage on different assets and trying to get financial arrangements that kind of satisfy like various specific functions and yield farming and all of these things

Starting point is 00:40:01 or potentially kind of those things plus proof of stake, right? So like you could imagine like you know, there is lending EF, but then you could imagine a system that allows you to lend stake EF and if you're lending stake EF then suddenly it starts mattering, well, who is doing the thinking? there's definitely concerns. I guess my kind of big picture reason why I'm not too scared is basically that if we just maintain this really kind of important property that says that if an attack happens, then lots of coins get destroyed, right?

Starting point is 00:40:33 If you just maintain that invariant, if an attack happens, then five million coins that were responsible for the attack get destroyed somehow, then you know that, well, it's a maximum that you can have. of like 10 attacks before half the east gets destroyed. And at that point, no one's going to be interested in staking in any financial setup ever again. Right. So like, this is part of why I'm really into, you know, security deposits and penalties

Starting point is 00:41:00 and slashing and all these things, even though a lot of other people are not. Like, I just like this aspect that it basically lets you kind of put a cap on the number of times the thing breaks, basically. Okay. Yeah. I mean, there are so many things we could discuss because a part of me does. wonder now also about this proliferation of derivatives and how that introduces new ways for people to profit by destroying the price of ether. But instead of going, instead of going down that

Starting point is 00:41:27 rabbit hole, I actually want to ask you more about your criticisms of defy. What are your main criticisms and concerns? I think one big one is just that a lot of people are underestimating spar contract risk. So like I remember even a year ago, there were people on Twitter, I think it was making the case that, you know, hey, if you have dollars in a regular bank accounts, then you're making maybe 2% interest, and that assumes, you know, like some kind of fixed deposit, whatever, and if it's variable, then it's even less. And, but if you put your dollars into compounds and you're getting 4%, well, why the hell would anyone choose 2% or 4%? clearly 4% is better, or even if you put your dollars and die, clearly 4% back when it was 4%.

Starting point is 00:42:16 Clearly 4% is better. And my response was, well, 4% is only better than 2% if those systems are exactly the same in every other way, right? And in fact, for the 4% system to be better than the 2% system, you basically need the 4% system to have less than a 2% chance a year of breaking, right? Because if the 4% system has a 5% chance a year of breaking, then it becomes negative 1%. And so I feel like there's a lot of people that are just not fully taking this into account in some of their calculations.

Starting point is 00:42:53 And they might think that, oh, okay, it's been safe for a while. It's been safe for a while. And these projects are audited. And a lot of these D5 projects really have done a great job of auditing themselves and just doing a way better job of that. and learning from the mistakes of the Dow and all of those things. But at the same time, are we safe enough that we can promise a chance of breaking of less than 2% a year? I don't think we can get there yet.

Starting point is 00:43:20 Right. So, like, that's one thing. And so I think, kind of the main takeaway from that criticism, I guess, is that Defy is that defy is still fine, but, like, don't act like it's a place where you should advocate for a lot of regular people to put their life savings into. Now, there are, of course, places where, you know, CFI and as in the traditional banking system has risks too, right? And like there's a lot of people who, because of their specific context, like their money might get seized or like their local currency might get hyperinflated or all these things. And so if you're in one of those situations where the risks of the centralized stuff is greater than 2% a year from you, then, you know, by all means, get into defy and it's safer.

Starting point is 00:44:05 But, or at least when I say defy in this case, I mean stable coins, right? Get into stable coins and they're safer. But like, if you're just in defy to get, you know, 4% interest instead of 2% interest, then like that's probably not something you should be doing. So that's one thing. The other thing is that there are a lot, sometimes defy things happening that are not very sustainable. Right. So like one big example of this.

Starting point is 00:44:35 is like yield farming, right? So like this is big, this big hot trends that we've been seeing recently. And you can often get these really high interest rates that was like 20%, 30%, and 100 plus percent annually. But the problem is that these interest rates are ultimately, they're paid for by rewards explicitly provided by whatever protocol is doing the lending, right? Like they're either provided by compound or they're provided by whoever else. Like I forget what the acronyms are these days. And those guys are not going to just keep on printing coins for people to entice people to get into their ecosystems forever. It's a short-term thing.

Starting point is 00:45:19 And like once the enticements disappear, you can easily see the yield rates and drop back down very close to 0%. So it's not a, that's not something that could make defy break, but it definitely is a sign that, like, we should not necessarily be treating a kind of temporary advantages that we have now as reasons or as things that we should be pushing out in front of the entire world as like reasons why everyone should get into defy because if you push them out to the entire world, then by the time people start getting into defy, these kind of temporary advantages are not going to be there anymore. Well, so I want to ask you how it makes you feel that that, that like defy right now and yield farming in particular,

Starting point is 00:46:06 kind of the main things that Ethereum is either used for, at least known for, or it's kind of what people are talking about when it comes to Ethereum. And before that, ICOs, which I know you also, at the time of the ICO craze, you tweeted critically about those. And, you know, all those things have been the major use cases of Ethereum so far.

Starting point is 00:46:29 So how does it make you feel to see that your creation is being used? for those things. And a two-part question, what can you do to steer things more in a direction of how you'd like to see Ethereum being used? I definitely think that those things aren't the only use cases. And I definitely just keep kind of discovering people using Ethereum for lots of other things. Like there's people that just to use E. For payments, there's people that use EAS for payments. There's people that use Ease to just, you know, move money from one country to another. There's even people using East for in-person payments.

Starting point is 00:47:08 They're not even used East to pay at a restaurant in London a few months ago. So like, and then, you know, you have prediction markets like Omen, which is great. And then there's Auger, which is coming out at the end of the month. So there's a lot of Ethereum applications coming out that I'm. definitely excited about. And I'm also just excited by the fact that in some of the non-Etherium communities that I'm kind of close to, the people are increasingly just starting to pay attention to Ethereum. So one of the things I tweeted recently is there was this article about, it was this a Nigerian person that was basically describing a proposal for a new spelling system for,

Starting point is 00:48:04 I think it was the Igbo and one other language that's common in Nigeria. And what I read through that article, I saw at the end of the article, there was an ether donation option, and there was a comment box where this was one of those post comments that go directly on the Ethereum blockchain sort of things. Right? So that's one example. And then another example, I just saw, like, in the rationalistic community, as people are just starting to link to some of these open prediction markets more and more, right?

Starting point is 00:48:41 So, like... I mean, I still think these are anecdotal, right? I mean, by and large, at the moment, it's defy and before that it was ICE. I'm not trying to say it's not used for these other things. But how does it make you feel that... It is used for those other things. Yeah. I guess, like,

Starting point is 00:49:00 my goal was to kind of empower all of these other use cases that, you know, if we like. And I guess hope that each, that these kind of more hypey use cases are all, like, they might be big individually, but they're, like, just because they're on someone sustainable individually, the only each last for, like, one or two years. So, you know, it is a, it's definitely a long game, right?

Starting point is 00:49:29 Like, I feel like the ratio of, like, things that I'm excited about to just, like, financial speculating things has definitely improved between 2017 and 2020, right? So, you know, in 2017, there was this big ICO craze, but, and there were also kind of off in the corner a couple of people using Ethereum for, well, what was it back then? There was Auger, and Auger had like a couple of dozen users, and like maybe there were people trying to make a Dow, and there were people just using East for Payments. So in 2017, Maker didn't even exist yet, or at least it wasn't on chain. It was just a project, right?

Starting point is 00:50:11 And in 2020, ITOs kind of did their boom and bust, and they've collapsed, but now we have defy and we have yield farming and like I'm definitely not expecting you know yield farming to be a multi-billion dollar industry two years from now. I mean unless of course you count staking as yield farming like staking technically has yield but like whatever it'll be it'll be a much more kind of subdued and boring thing like that's a prediction I'm happy to make but I think kind of the more interesting use cases of Ethereum are are going to stay and we're only going to grow stronger. So that's my hope In terms of, like, what we can do to help realize that hope. And I think one thing is to just help some of these other applications that kind of

Starting point is 00:50:58 advertise themselves and get more attention and get in the community is one thing. And it's one thing that we've definitely been trying to do. Aside from that, like just aside from these, the kind of deliberate efforts to either help these applications develop or, you know, improve these applications, you know, social status. And there's definitely a limit to how much we can do. And what do you think is the most optimal way for DeFi projects to distribute their tokens? Yeah, this is a tough question, right? Because I recognize the challenge that these projects are in, right?

Starting point is 00:51:34 Because if you're going to launch with a token, you have to distribute the token. And if you have to distribute the token somehow, and in 2009, the cool thing was proof of work. And proof of work is very nice to democratic. But now, you know, we hate proof of work. And proof of work is like neither democratic nor necessary. Then in 2017, that's like, you know, if you want to distribute your coins, you sell your coins. And now I feel is they're not hip anymore.

Starting point is 00:52:02 So like what do you, you know, then in 2018 and 19, we had air drops. And like, I mean, the problem with air drops, of course, is that you get nothing for them and people. And it's not clear how effective they are and actually kind of creating insurance. for your ecosystem. I grant that there is a genuine challenge here, and that's a big part of why I'm not willing to just go all out and criticizing some of these projects.

Starting point is 00:52:26 I mean, there is a twofold challenge, right? One part of the twofold challenge is basically that the economics of building anything cyber are often very screwed up, basically because you're building something that has a zero marginal cost, right? you'll building something where it's, you know, there's a lot of costs involved in just building everything out at the beginning.

Starting point is 00:52:49 But then once you've built something, then the cost of like distributing each additional unit of like ability to participate is all is close to free. But the problem is that if you just make your thing close to free, then like how do you pay for additional development? And this was like one of the big problems of just the whole internet. And launching a token was this kind of one way of kind of finally being able to to break out of that trap and now, and so, of course, people want to launch tokens. And then if you don't do the token route, then, like, what can you do?

Starting point is 00:53:19 Well, you can apply to the Ethereum Foundation, and, like, maybe the Ethereum Foundation will give you a $250,000 grants, which is already much better than three years ago, or would have given you a $10,000 grant. There's still this kind of difference between, like, the scale of thing that people want to build and the scale of financing that you can support that way. So, yeah, and I definitely understand that these project teams are facing tough challenges and that we don't have great solutions to direct them towards. So yield farming or liquidity mining or whatever it is is definitely one of these paths that people have tried. And I think some level of that kind of distribution is definitely okay.

Starting point is 00:54:06 like I think some level of this idea that, you know, if you have a project, a sum system, and that system has a fee in it, then like refunding that fee in protocol tokens, basically distributes protocol tokens to your users, and that's really nice and wonderful. Like, there's a level of that which is legitimate. Like, I think it becomes illegitimate when basically you're refunding people more money to use the protocol than their spending to use the protocol. and so people end up just like dunking their coins and getting money out without actually using the protocol. And I think like in the long run of projects do that, what's going to happen is that people are just going to like professionalize farming and they're going to say, hey, give us our coins or give us your coins and we'll just like keep on sticking your coins into all of these projects

Starting point is 00:54:54 that are offering rewards. And like we're not actually going to be part of their communities because why should we? And so, yeah, that's kind of the cool of brand that I think will happen, which is part of why I'm comfortable kind of criticizing extreme liquidity farming as being unsustainable. Like there's some level of it, which I think there's some level of liquidity farming, which is fine. There's some level of air drops, which is fine. I mean, I'm looking forward to per person air drops as well. I'm even looking forward to sales with per person caps, even. I mean, DAICOs could still be done, or even just kind of things that bootstrap into being

Starting point is 00:55:28 DEOs from day one are also interesting. I mean, this whole kind of like, distribution. coins directly to developers thing is interesting. And Handshake kind of did something like that with part of their distribution model. And I know even just the concept of developer premines in general is kind of that. But like the problem with coming up with something in that direction that's good is that you need a governance mechanism. And the governance mechanisms are hard. We'll keep going. We'll keep figuring out better things.

Starting point is 00:56:00 Another big trend on DeFi these last few months. really is Bitcoin on Ethereum. It's been skyrocketing. And at the moment of recording, it's about $160 million worth of Bitcoin is on Ethereum. What do you think is the significance of this trend, and where do you think it could go? I think that there's just a lot of people who want to hold Bitcoins and have the conveniences of Ethereum DFi. Like, these Bitcoin on Ethereum project satisfy that need. I mean, I think in the medium term, you could even see Bitcoin on Ethereum getting into roll-ups, and then we have another Bitcoin, like, hyper-scalable Layer 2 protocol.

Starting point is 00:56:44 So I think it's a combination of, like, defy demand and just demand, like, especially kind of going further into the future for just some of Ethereum's other conveniences. So where will this go? I don't know. I mean, at this point, there's definitely demand. There's definitely more and more people who, who are interested in the kind of straddling the line between the Bitcoin and Ethereum, like kind of ecosystems, both in terms of communities, as we've kind of seen on Twitter

Starting point is 00:57:12 and other places and in terms of just what they use, right, Bitcoin on Ethereum. One thing that could happen is that some of these people are just realized that, like, hey, why, you know, for on Ethereum, then why not just use eth as an asset? Another thing that could happen is that there's just more and more demand for this. and Ethereum becomes the primary place where Bitcoin activity happens. And then if that happens, like one of the challenges and one of my worries with these bridges is that basically the bridges are all right now trusted, right? So like the problem is that Bitcoin, like the Ethereum blockchain can run smart contracts

Starting point is 00:57:55 to verify the Bitcoin blockchain, but Bitcoin doesn't really have this kind of advanced smart contract capability. And so you can't have Bitcoin. addresses that verify the Ethereum blockchain. And all you can have is either single signatures or multisigs. And so the problem is that if you have one of these multi-sigs, then you start having, you know, 557,000 bitcoins inside one of these multisigs, then there might be an incentive for that team to run away.

Starting point is 00:58:22 And that starts becoming more and more of a systemic risk, right? I guess one of the ways of thinking about this is that like a lot of Bitcoin people are very excited about liquid. But liquid, it's ultimately a permission consortium chain to use the Vee, and if Tim's wants in term for it. I just love using that term to poke people. It's the permission to sororium chain. It's trusted. And ultimately, there is a committee of people who have the ability to basically take the coins out and pretty much take the coins for themselves. And so if you're willing to take that trade off, well, why not just instead take that trade off with the Ethereum network essentially? Because the Ethereum network already has so much stuff on it.

Starting point is 00:59:08 Like that's where I see some of the kind of the psychology of this being. Then, you know, if it gets much bigger than you do have this systemic risk issue. And then the question is, well, how does the systemic risk end up getting resolved, right? one possibility, of course, is that we start moving to these kind of collateralized Bitcoin on East things like TBTC Network. But the problem with that is that if you start going to like 557,000 Bitcoin's on Ethereum, then you need a huge amount of EF, like you need literally like half of all EFs basically being collateral for those coins.

Starting point is 00:59:46 Another interesting approach, and this is something that I don't think anyone's talked about before, is that if a substantial portion of Bitcoin ends up being on Ethereum, then what happens if Bitcoin miners start facing matters into their own hands? And Bitcoin miners basically pre-commit and they say, we're going to soft fork away, like we're going to invalidate any chain that includes transactions that illegally withdraw from these multisigs without the permission of whoever actually owns those coins based on what happens on the Ethereum side. Right.

Starting point is 01:00:27 So what if Bitcoin miners start enforcing the rule that withdrawals from the bridge actually are only valid if they're valid according to the rules in the contracts on the Ethereum side? And if you do that, then basically you would end up making the Bitcoin chain really tightly coupled to the Ethereum chain. And that would be a really, if you start doing that, then even a lot of Bitcoin-side security concerns just start becoming much less. And that would be just an interesting future to explore even theoretically. But this is all kind of going extreme in one direction, right? The other direction, of course, is that this just all remains a fairly minor and kind of niche interest. of people and that, you know, there's just, I don't know, it keeps on, it keeps on being there

Starting point is 01:01:20 and there's an activity keeps on happening, but kind of the bulk of Ethereum activity continues to be in other pastures. I mean, that's the more boring side. And like, don't want the facts that I spent, you know, five minutes talking about the exciting side and one minute talking about the boring side make you think that I think the exciting side has a five times higher chance of happening than the boring side. And no, it's not. It's just five times more exciting, right? So, you know, there's a big chance that the boring thing will just happen. And that's fine. I mean, these are all just experiments that have some probability that's individually a low

Starting point is 01:01:53 probability of becoming really interesting and big. But kind of on the whole, there's always something that ends up making a big difference. Let's switch to talking about how the crypto space has become kind of part of the geopolitical balance of power. I would say in the last couple years. And one of the pieces of news that involves Ethereum is that China's blockchain service network is being built to interact with the public Ethereum blockchain. And I wondered what your feelings were about that. It's being compared to how China's bite dance has the TikTok version, which is the version used outside of China. But as we've seen in the last few

Starting point is 01:02:36 years. China obviously has been perpetrating these human rights abuses with the concentration camps of the Uyghurs. It's been using its economic power to censor organizations like the NBA or the World Health Organization. There are concerns about data privacy and security for users of apps like TikTok. Is there any risk to users of Ethereum who connect to BSN notes? I definitely don't see how the BSN would have the ability to kind of break the Ethereum network. And unless this is all somehow, you know, crazy five four dimensional chess, a kind of, like a friend for some kind of 51% attack, but I see that chance as being very unlikely. Like, the somewhat more realistic concern, of course, is that, you know, there's nodes that are spy nodes

Starting point is 01:03:24 and they'll, like, inform the Chinese government of what IP addresses are sending what transactions. And, like, that's not just the Chinese government concern, of course. There's, you know, the U.S. governments and, like, you don't even have. have to go into conspiracy theories. There's chain analysis the company, which has known to be working with U.S. law enforcement. And it's in their economic interest to work with other people's law enforcement, too. Ethereum users should definitely be operating under the assumption that at network level, there's a lot of spy nodes going around. You know, if they want privacy, they should basically combine blockchain level privacy with things like tornado dot cash, or

Starting point is 01:04:04 some of the better things that are coming out with a network level privacy. Like, you know, if you have a transaction that needs privacy, just like hop on a VPN or whatever. Or it doesn't have to be VPN. Could be tour. Could be any of these things. No, that's definitely in like one aspect that people should definitely be kind of thinking about.

Starting point is 01:04:28 Of course, the other kind of geopolitical aspect of this is that, you know, blockchains are potentially the one in an environment where applications from all of these different places around the world can just have come onto the chain without and they're not going to just get immediately blocked by like whatever country doesn't happen to happen to not like them at that point in time that's interesting like i mean i definitely think that like the whole kind of splinter net trends that we're seeing with, you know, obviously it started with the Chinese firewall for a long time. And then, you know, now these kind of potential concerns about the U.S. banning TikTok and then India banning 50 Chinese applications. And then, you know, Russia doing it's thing and now a couple of people in the EU interested in doing their thing.

Starting point is 01:05:23 Like, I definitely think that that kind of trend is very harmful. and it's potentially like really risks and like destroying a lot of the kind of brightness and good that I think comes out of the internet just as a way for the world to come to come together without that coming together having to be intermediated by you know all of these politicians with big guns and it may be and of course the original internet hang out in a lot of ways that just fails to live up to that promise right and especially because a lot of activity is just move to these kind of centralized corporate platforms. And the blockchain space has a chance of remaining the one part of the internet that's not that, which is interesting and could have a lot of complicated consequences. And back to China, I have no idea, like, what people are going to end up using the BSN to build on Ethereum. and it's still like very early and not clear.

Starting point is 01:06:27 I mean, like historically, well, but there hasn't even like been much kind of institutionally sanctioned public chain activity at all so far, right? Just because, and it's definitely been more kind of private chain oriented, but in a lot of ways, kind of the global mood of the crypto spaces shifted from private chains to public chains.

Starting point is 01:06:51 And so that's one of those places where you have to like pretty much either split offer a debt. So we'll see. And I definitely like see that like the space is like entering Dicey territory in some ways. But you know, at the same time, this is literally a space, which was founded with a basically a link to a news article that was criticizing a big, a big financial bailout. So like, you know, if you're afraid of dicingness, then what the hell did you think you're getting into? In that regard, I actually wanted to ask also about some of these other phenomenon that we're seeing with China's DCEP. It's Digital Yuan rolling out. And a lot of people say that this could be China's play to reduce the global reliance on the U.S. dollar. Meanwhile, we've also got the upcoming Libra, which through Facebook and all of the different.

Starting point is 01:07:52 different Facebook platforms will have a larger target user base than the population of China. And then on top of that, we've also got the Central Bank digital currencies from other countries that will probably be rolling out. And meanwhile, at the same time, we've also got decentralized cryptocurrencies. So when you kind of look at all of these different things that are either waiting in the wings or already coming on stage, where do you think these trends will go? Yeah. So I think there's different ways to look at Central Bank digital currencies. first of all, kind of the macroeconomic ways of looking at them and just thinking about, you know, what are they, like, will they end up displacing commercial banks and all of those issues? Another way to think about a look at it as also just from like a private people interview, which is something that a lot of people in the crypto space kind of care about.

Starting point is 01:08:44 And of course, you know, nobody's expecting DCET to be anywhere remotely privacy preserving, kind of in the way that, crypto people would like, and that's probably not going to be true of CBDCs in general. But at the same time, the other thing that's happening is basically this kind of change in what the government's role is with respect to the monetary system. And it feels almost like a push toward kind of government as international platform. platform, right? So, like, this is something that, like, for example, Estonia has been, end of trying to do for the last decade, right? You know, you have your e-residency, and you can kind of be an E-estonian, and you can be part of this Estonian e-community, even if you've

Starting point is 01:09:34 never once set foot in Estonia, the country. And they kind of talk excitedly about how, you know, this is the future of government as a platform. And central big digital currencies might end up being the first big kind of mainstreaming of government as a platform. You could imagine, you know, things like DCEP being used outside of China. I think China in particular will have more challenges doing that than a lot of other countries just because of all of the trust issues and the politics and all of that. But at the same time, especially we're still looking into central bank digital currencies more broadly. Like it's something that you could imagine, like governments creating digital currencies,

Starting point is 01:10:21 even specifically with the goal of them being used in a broader context. And so you could even imagine, you know, places like Switzerland saying, hey, we're going to create a digital coin and we're going to just create this bit, basically use this to expand our influence on the global stage. And this could end up being like a way for countries to make this kind of political power push. And in terms of the consequences of this, I mean, And jurisdictional competition is definitely great in a lot of ways. And it could easily, like, give access to people who live in, like, not very competent jurisdictions,

Starting point is 01:11:06 like, basically access to services provided by kind of international governments and international entities that are much kind of higher incompetence. So much more competent, not much more incompetence. So it'll be interesting to see, I guess. And then the other thing that will be interesting to see is like the extent to which it's possible for these digital currencies to interoperate with public chains. Right. So like could you have a decentralized exchange between a CBDC and Ethereum? And maybe you could, right?

Starting point is 01:11:46 Because ultimately the number of things you need to have to create a decentralized exchange is not. that high. You just need the ability for the Ethereum side to be able to verify transactions that are happening on the other side. And if you can do that, then you can jump exchange between the two systems, even trustlessly. And potentially, you could even do it in a way that's like very privacy preserving. And so like on the CBDC side, it just looks like another transaction. And then there's part contracts on the Ethereum side that kind of ensure that everything happens correctly. So once you have decentralized exchanges between these systems, then suddenly you have this kind of much more liquid, kind of global financial environments, which would also be interesting

Starting point is 01:12:32 to see. Definitely. One of the biggest black eyes for Ethereum has been the indictment of head of special projects, Virgil Griffith, for allegedly helping the North Korean regime evade sanctions. Virgil was one of the highest ranking people within the Ethereum Foundation. and you knew he was going to go to North Korea beforehand and even urged him to enjoy himself while he was there. Did it not occur to you or anyone at the foundation that his going there might end up harming the foundation's reputation? I mean, I think especially given that he was just going as an individual,

Starting point is 01:13:13 and he was kind of very clear on that in multiple points, I guess. And the big thing is that, you know, the Ethereum Foundation definitely has the kind of for better or for worse culture of respecting its members' autonomy, basically. And I mean, you can see that in a lot of ways. I mean, you can see that in, you know, foundation developers arguing with each other on Twitter. You can see that with Virgil, you know, independently deciding that it would be cool to check out North Korea and, you know, seeing, well, you know, what they're watching conferences are up to. and just people working on a lot of independent things. So I think that's a culture that's definitely done and a lot more good than harm for the foundation.

Starting point is 01:13:57 And I definitely don't think that there's that many people that think, you know, Ethereum Foundation bad because Virgil did this North Korea trip. At least that's been my own general impression, right? that it's, in terms of the news, it's kind of happened once and then quieted down after that. Like, I guess the, I mean, the long-term consequences of all of that whole trip in general just seemed like, okay, you know, he went once, and then there was another conference, and he is, like, obviously not able to go or not able to go.

Starting point is 01:14:34 And, like, I forgot it might have even been canceled because of the virus. And then in the future, realistically, is not going to go to any of those either. the things that they'll do with watchin are the things that they'll do with watchings, I think, regardless of, like, I don't know, who pops over for a visit for a couple of days.

Starting point is 01:14:54 Well, but actually, I wanted to ask, so just beyond the foundation or what the government says about what Virgil did, I just wanted to ask from the perspective of Ethereum's reputation as being, you know, the unicorns and rainbows,

Starting point is 01:15:09 cryptocurrency. and see, I mean, doing anything with or for what is the most brutal regime on the planet is, as Alex Glast, you know, the Human Rights Foundation pointed out, the least cypherpunk thing anyone could do. So just from that perspective alone, did it ever occur to either you or anyone within Ethereum that it might not be a good idea for virtual to do that? And I think there's definitely people who are opposed to it from the beginning, and there's definitely people who were fine with it from the beginning. I mean, I guess, this is definitely one of those questions

Starting point is 01:15:50 where it's hard to be certain kind of after the fact and it's even harder to be a certain ahead of time. Like, I definitely think this kind of view that, because a country's government does something bad means that, you know, you have to kind of completely, completely, kind of ostracized the country, and you can't even take one trip to a block chain conference. Like, is it even necessarily clear that that's true? I don't know. So, I don't know. I mean, I definitely don't, I definitely don't, kind of claim certainty that it was, that it was the right choice. But

Starting point is 01:16:28 and I think also saying that just going out to a different, you know, different, you know, different jurisdictions and including the unfriendly ones and giving them a chance to listen to them. It's kind of outright a bad thing. I think that opinion is also a bit too extreme to be able to stay constantly. So, you know, I don't think you listen to this podcast episode I did with a human rights activist and North Korean defector, Yommi Park, but I will send it to you because in it she talks about what it was like to live under that regime. And it's really, truly just a brutal dictatorship. And it's just a country that has, you know, jail.

Starting point is 01:17:17 And I'm definitely aware there's lots of very terrible things happening in North Korea. Like, I'm not denying any of those things. All right. Well, on a related note, I wanted to ask also about Stephen Naryov, a technologist and lawyer who helped Ethereum with its. crowd sale, he was charged with extortion of a company that was trying to hold an ICO in late 2017. And between this and Virgil, I wonder, do you feel Ethereum, in general, needs to do a better job of vetting the people who become involved with the foundation or other core members of

Starting point is 01:17:51 the project? Stephen is definitely a separate case. Like, Ethereum before about 2015, like, there's definitely, I know, this founding team and the founding team, had a lot of characters that today I definitely don't approve of. And at the time, I had no idea how to even, like, tell apart good people, good people from bad people. And pretty much everyone seemed reasonable to me. And so, like, at the time, I definitely didn't have the ability to kind of detect the problems in someone like Stephen Naryov.

Starting point is 01:18:26 And since then, the Ethereum Foundation has gotten much better. since then, like, a lot of the kind of characters that caused us a lot of damage at the beginning we've successfully distanced ourselves from. And I think more recently we have a team that, in general, we're very happy with. And I'm definitely not willing to allow kind of Virgil to be put into the bad character bucket just because he was more geopolitically open-minded than a lot of other people. I'm very happy to kind of burn reputation points defending him at some extent there. He's like, no, and that's definitely not the same thing as like what Stephen did, which

Starting point is 01:19:10 involves like huge amounts of like fraud and behaving and I think definitely very, like ways that made women around him very uncomfortable at the very least and all of those things. Like doing that, that's a sheet of character, man. And like, I'm definitely happy I'm better at that I think the hearing. Foundation is better at detecting him than it was at detecting a lot of other people. Virgil's still a friend, and I'm looking forward to him no longer being in house confinement soon. Over the years, the Ethereum Foundation has also come under fire for being unusually opaque,

Starting point is 01:19:44 which is seemingly at odds with the purported transparency of the blockchain world. I don't know if it doesn't seem to me the foundation has made much more effort to become more transparent. There continues to be no org chart. There are a lot of people involved in the foundation who have no title but have a lot of influence. Do you have plans to address this situation or are you comfortable with this? I definitely would have to dispute the charge that the Ethereum Foundation is an incredibly opaque organization. I think, I mean, first of all, there's all of these set of bi-weekly kind of very frequent updates from each of the individual teams on, you know, the clients and like all the software and individual projects that

Starting point is 01:20:29 they're working on. There's all of these developer calls that are public. I mean, we very frequently publish information about what our finances are. And regarding work charts, I think, I mean, the challenge there is just the Ethereum Foundation's organization is definitely kind of not conventional in a lot of ways. And so it's hard to communicate that, right? And it's Like, the formal chart is not even necessarily going to reflect the underlying reality of how people interact with each other. Like, I think, I remember, like, something like a year ago, I think it was, I think it was virtual that published a kind of an actual chart of, like, basically who and who talked to whom in the Ethereum Foundation. And that chart was basically just, like, automatically generated from the results of giving people surveys. and that ended up just being a much more accurate description of like who does what in the

Starting point is 01:21:29 area foundation than, you know, any kind of description of the formal structure could have been. And was that made public? Hmm. I don't remember. That's, you know, this is something that I'll probably have to look up. But, I mean, I guess, like, the larger point is that, like, there's a lot of people kind of complaining about lack of transparency, but the thing that I don't see as much is just specific items of things that they want to be transparent about.

Starting point is 01:21:59 Like, in terms of just outputs of the Ethereum Foundation, I feel like we try hard to be transparent. And we publish blog posts detailing our grants. We publish blog posts detailing our, like, all the different project teams and what they've been working on. You know, I publish, like, fairly regularly what the Ethereum Foundation's financial situation is and all of these things. So if people could just say in kind of more specific and explicit terms, like here is one thing that I don't know that I would like to know.

Starting point is 01:22:30 And that's definitely something that I think would definitely help me and help us a lot. On Twitter, Anne Connolly, whose blockchain faculty at Singularity University, asked, are you concerned about the lack of diversity in Ethereum, particularly in development? and she asked if that could also potentially impact the success of Ethereum in the long run. I definitely feel like we've tried hard to be diverse in a lot of ways and even just trying hard to nurture communities in a lot of different countries is probably the one biggest example. And we have a lot of different kinds of people on and of different. different layers of our team. And we have a lot of people from the U.S.

Starting point is 01:23:19 And we have Ayak, who is our executive director. And she has been kind of pushing in a different perspective and focusing on inclusion. And a lot of these other things, like we've had some teams in Europe, some teams in Asia, some team increasingly a couple of people based in India. So on that dimension, there's definitely, like, a lot of things that we've, uh, kind of tried to do. Uh, I mean, I'm sure that there's a kind of entire kind of communities and sub-communities that we've just kind of completely failed to kind of reach out, um, reach out to and integrate with. And last year we've, uh, um, just to get into the

Starting point is 01:24:07 African community more, for example. Um, but no, even still, like there's, there is a lot that we're missing, I'm sure. The challenge there is just that any organizations and any community's eyes are ultimately kind of limited. And so, like, if you think there's groups of people that the Ethereum ecosystem has been ignoring, then that's something that I'm sure once again, you know, we'd be very kind of happy to hear about and it's something we always appreciate getting help in. I mean, there's also just that kind of currents that we have to deal with. in terms or just in terms of, you know, what kinds of people by default sort of get interested in crypto by themselves, right? Like crypto tends to be, you know, heavily kind of U.S. focused,

Starting point is 01:24:59 heavily focused on, like, wealthier people in the United States, especially, you know, like a very kind of very particular demographics that are, you know, interested in, like, computer science and monetary theory and all of these things. So, you know, there are groups that have tried to kind of make Ethereum relevant for other communities. Like there's, you know, all of these different exchanges in different countries that just try to support people, you know, using Eaths as a way of moving money around. I mean, to give a more dicey example, there's like the stuff that Amina's done around

Starting point is 01:25:36 sex workers, which is, you know, definitely far, kind of far away from a kind of kinds of communities that crypto typically reaches out to, you know, even though sex worker communities definitely have a lot, like, a lot of problems around just getting discriminated against in a whole bunch of ways. Amin Soleimani. Yes, I mean, Soleimani. So, yeah, and I guess we've been trying. We always welcome pointers on, like, who we can be, who we're missing and who we can

Starting point is 01:26:12 reach out to better. So here we are five years after the launch of Ethereum. Where would you like to see Ethereum go in the next five years? Getting Ethereum 2.0 done is really important. Hopefully before the end of the next five years. I think getting Ethereum to the point where that list of applications I mentioned earlier, and of the things that I'm excited about people using Ethereum for, would actually

Starting point is 01:26:45 is something that like lots and lots of people use Ethereum for and where Ethereum is something that is just a regular part of people's lives in a lot of different communities and a lot of different contexts

Starting point is 01:26:58 and isn't just about like something buying for Ethereum people. Yeah and I think getting the technology to that point and just getting to the point where you actually have like lots of people from and lots of places from around the world

Starting point is 01:27:14 deriving value for Ethereum. And just getting both of those two things done, I think would be a great place to be. And do you have any general predictions about crypto that you want to make about the next five years? Hmm. I don't know. And I think, well, there's things that I can say.

Starting point is 01:27:32 So, like, one thing that I can say is that the research side of the crypto space has definitely already made a kind of very sharp move away from being like, hey, you know, let's like think in very abstract terms and let's figure out just what things exist in the first place. So just, okay, we know exactly what can be done and what can't be done. Let's keep just making improvements to the things that we know that we can do. And like a lot of Ethereum research has moved into that second category already.

Starting point is 01:28:03 A lot of Ethereum research, you know, around things like sorting, proof of stake, zero knowledge proofs, like all of these things, hasn't already moved into that kind of more incremental category. And I think five years from now will be even further there. I think right now we're in kind of that transition from, you know, abstract research to development and optimization. And I think five years from now will be thoroughly in a kind of optimization phase. I'm generally expecting that crypto will just kind of continue with the long march to just being more normal and being more just kind of a part of people's lives that everyone just expects to exist. And that'll be a good change in a lot of ways. Great.

Starting point is 01:28:51 Let's hope so because currently my friends think what I do is kind of weird. So where can people learn more about you and Ethereum? Ethereum.org. Perfect. All right. Well, thank you so much for coming on Unchained. Thank you.

Starting point is 01:29:08 Thanks so much for joining us today. To learn more about Fatalic and Ethereum, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Unchained is produced by me,

Starting point is 01:29:24 Laura Shin, with help from Anthony Youe, Daniel Nuss, and the team at CLK transcription. Thanks for listening. Thank you.

Unchained - Vitalik Buterin on Ethereum's Five-Year Anniversary - Ep.183

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