Vitalik Buterin, co-founder of Ethereum, shares his thoughts on the five-year anniversary of Ethereum, challenges with ETH 2.0 and criticisms about DeFi. We discuss:
- his thoughts and feelings ahead of Ethereum’s five-year anniversary
- how to address the high gas fees on the Ethereum network
- whether the complexity of Ethereum 2.0 creates a risk for the security of the network
- whether staking will lead to a higher focus on ETH price and issues such as monetary policy
- how he looks at the ETH price with its significance for security in Ethereum 2.0
- how proof of stake systems can be more democratic
- whether staking lends itself to the kind of securitization that looks similar to mortgage-backed securities
- his concerns about DeFi
- the most optimal way for DeFi projects to distribute their tokens
- his thoughts about Bitcoin on Ethereum
- inherent risks to Ethereum users connected to China’s Blockchain Service Network (BSN)
- his views on DCEP, other CBDCs and Libra
- the indictment of Ethereum Foundation staff member Virgil Griffith for allegedly helping North Korea to circumvent sanctions
- how he plans to make the Ethereum Foundation more transparent
- whether lack of diversity would impact the success of Ethereum in the long term
- where he would like to see Ethereum in the next five years
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Episode links:
Vitalik Buterin: https://twitter.com/VitalikButerin
Ethereum: https://ethereum.org/en/
Vitalik’s blog: https://vitalik.ca
Median gas price: https://blockchair.com/ethereum/charts/median-gas-price
Average gas price: https://blockchair.com/ethereum/charts/average-gas-price
Solutions to gas price problem: https://www.coindesk.com/ethereum-developers-consider-new-fee-model-as-gas-costs-climb
Reddit AMA with the Ethereum 2.0 Research team, including Vitalik: https://old.reddit.com/r/ethereum/comments/ho2zpt/ama_we_are_the_efs_eth_20_research_team_pt_4_10/
Paper on how DeFi lending could undermine security in a POS system: https://arxiv.org/abs/2001.00919
Vitalik tweet on yield farming: https://twitter.com/VitalikButerin/status/1278337657194655744
Abra settlement with SEC and CFTC: https://www.coindesk.com/sec-cftc-hit-crypto-app-abra-with-300k-in-penalties-over-illegal-swaps
Maya Zehavi’s comments on what this could mean for DeFi: https://twitter.com/mayazi/status/1282696180741414918
China’s BSN using public chains, including Ethereum: https://www.coindesk.com/chinas-blockchain-infrastructure-to-extend-global-reach-with-six-public-chains
Unchained interview about DCEP: https://unchainedpodcast.com/why-china-aims-to-replace-cash-with-the-digital-yuan/
Charges against Virgil Griffith: https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-arrest-united-states-citizen-assisting-north-korea
More on Virgil Griffith case: https://www.coindesk.com/usa-v-virgil-griffith-what-we-know-and-dont-in-the-bombshell-crypto-sanctions-case
Unchained interview with human rights activist Yeonmi Park on what life is like in North Korea: https://unchainedpodcast.com/yeonmi-park-on-why-doing-business-with-north-korea-is-like-buying-a-ticket-to-a-concentration-camp/
Unchained interview on why North Korea is interested in cryptocurrency: https://unchainedpodcast.com/why-north-korea-is-interested-in-cryptocurrency/
Case against Steven Nerayoff: https://www.justice.gov/usao-edny/pr/two-arrested-extortion-startup-cryptocurrency-company
Transcript:
Laura Shin:
Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host Laura Shin. Subscribe to Unchained on YouTube where you can watch the videos of me and my guests. Go to youtube.com/c/unchainedpodcast and subscribe today.
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Today’s guest is Vitalik Buterin, the creator of Ethereum. Welcome, Vitalik.
Vitalik Buterin:
Hi, Laura. Nice to be here.
Laura Shin:
First of all, congratulations on the five-year anniversary of Ethereum.
Vitalik Buterin:
Thank you. Yay. I’m so glad that we’re finally here.
Laura Shin:
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 tough questions that you would never do an interview with me again, so I’m happy that we are proving that person wrong.
Vitalik Buterin:
Yay.
Laura Shin:
So, upon the five-year anniversary of the Ethereum network being live what are your main thoughts and feelings?
Vitalik Buterin:
Ethereum’s definitely come a long way in the last five years and it’s definitely been really striking to just see the change, just see how much change there has been, and even just see how more and more of the changes just outside of my, and even outside of the Ethereum foundation’s control. So, like if you remember Ethereum in 2014 and in 2015 it was much on the smaller side of the community. Everyone who was doing anything important knew each other and was coordinating really closely. There was myself, there was Gavin, there was the developer team, there was Vlad, and then some other people and everyone was very closely talking to each other, and then just over time, they’re just started to be more and more people coming into the community, right, I remember DEF CON 1 in London was this big coming-out party for Ethereum in a lot of ways, and that was when Microsoft announced their cooperation with Ethereum for the first time, and that was huge, right. In 2020 it’s like okay, it’s another bank, another software company doing something, but in 2015 it’s like whoa, you mean a big software company is doing blockchain things, and since then there were 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. Augur is pretty big and has its own story. Maker is quite big and has it’s own story, as do all of these other subcommunities within the Ethereum ecosystem that are, at this point, even themselves bigger than Ethereum was five years ago, and so just seeing that expansion and just continuing nonstop, going from 2014 to 2016, and then the big bubble, and then even past the bubble, right. The hype’s died down but I think the community has continued 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 proof of stakes progress from being not sure if they can even work, to an idea, to a white paper, to a spec, to a public multi-client test network has been wonderful as well. Lots of great things are happening and I’m very happy that lots of great things are happening.
Laura Shin:
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?
Vitalik Buterin:
There’s a definitely a lot of little things and some of them are technical little things, like using a binary tree instead of a hector tree, and there’s 50 different things like that, that sound really boring but if we did them we would’ve been a year closer to Ethereum 2.0 by now, but aside from that there’s also social things and in a lot of ways the social things are 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 big and heavy development team that…as opposed to starting with a smaller more development-focused effort that was one of the things that I might’ve done differently.
Laura Shin:
Wait. The distinction you’re making when you said big and heavy development team, did you mean the business side?
Vitalik Buterin:
Yeah, the business side.
Laura Shin:
Okay.
Vitalik Buterin:
Yeah, so big, and heavy not just development team. I think, for example, the grant program has been great and we could’ve been in a much better place had we started that two or three years earlier than we did, so a lot of things that the Ethereum foundation has been doing over the last two years has, in many ways, been just correcting for some of the things that we did in the years before that and just trying to fix all of the mistakes, and had we known then everything that we know now then, of course, we would’ve 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, because if you knew what the mistakes are then you would find a way to stop making them.
Laura Shin:
Right. 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 of 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?
Vitalik Buterin:
So, ultimately high gas prices are just a function of high demand. Lots of people want to spend Ethereum transactions on the blockchain and there is 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 so the other is to find a way to increase the amount of space, so for the second…well. First of all, I should say the first one is slightly less ridiculous than 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 that they’re using it for, so even just to give one example, just a lot of the DeFi arbitrage things that are happening they involve people sending lots of transactions and some of them getting on-chain, and a lot of the time just the transactions they get on-chain are transactions that just don’t do anything because they’re the first…they’re not the first to get in the race, or whatever right, so that category exists.
There is a lot of room for applications to increase 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, right, and scalability is this thing that we have been talking about for more than five years, and every major Ethereum presentation, from me, you can find I probably mention scalability, and big problems we’re working on, privacy, scalability, user experience, security, and what? Did I forget something? Scalability. The difference now, of course, is that instead of just being this far away theory thing it’s a very short-term necessary reality that we have to find a way to work around.
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 Eth2 blockchain by itself, so Eth2 was, of course, really important and big, but at the same time it is farther away that some of the other things, but the good news is that there are these other closer things in the pipeline, right. Rollups are one thing that I just mention all of the time, right. Rollups being this really wonderful scalability technique that basically says instead of doing everything on-chain you just put a very minimum and compressed amount of information on chain that just basically tells people how they should update their stakes to how they should update the internal record-keeping of this roll-up system, who has how much money in the rollup, and then instead of putting things like signatures, for example, on-chain and verifying them on-chain you just have one zero-knowledge proof that just says, here’s the proof that these thousands of signatures exist, and I’m not going to tell you what the signatures are but here’s the proof. It says that they exist and because it’s a cryptographic proof you can now trust that these transactions are all valid, or alternatively you can combine all of the signatures together and all them all into one big signature and then say if 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, the first family I talked about is the ZK rollup. The second family I talked about is the optimistic rollup, and they’ve both made a lot of progress, right. ZK rollups are already alive on Ethereum, so if you saw Loopring, the decentralized exchange, it’s a Chinese Ethereum-led company, they’ve been just putting out this decentralized exchange and basically just a system of Ethereum contracts, and it’s been running for a while and it’s worked great. zkSync, the one from Matter Labs is…so both of those exist and you can use them. They both even have built-in payments, so I think ZK rollups the challenge is that it’s…people love Ethereum because Ethereum lets you go beyond just moving coins around, right. If you just want to move coins around and whatever, there’s Mastercoin, or SLT on Bitcoin Cash, or any other of these things, right.
The true power of Ethereum is that it’s not just about that. It’s also about all of these other things, and so moving coins around is a big part of what people use Ethereum for but if you want to expand beyond that then if your knowledge proofs are not yet friendly enough for that in the future, they will be, though we’re still a couple of years away, so that’s one problem, but if you just want to move coins around then the only challenge is that we just have to get all of these wallets and exchanges and teams to just to work together and adopt a thing.
Laura Shin:
Well. One thing I wanted to ask was earlier when you talked about how the high gas fees reflect high demands, Alex Masmej, he’s the guy who’s selling shares of himself via coin, he had a question, which was what percentage of Ethereum block space is used for valuable actions versus bad ones, so I’m curious what your thoughts are on that.
Vitalik Buterin:
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 50 gwei per gas for is valuable because, well, by paying that transaction fee they clearly say it’s valuable, but on the other hand there is a lot of activity happening that’s clearly involved in all of these competitive games between different people, like just…like even in DeFi arbitrage where everyone is just sending a transaction on-chain, and a lot of them end up failing and it would be nice if that entire…basically, what’s happening there is an auction between all of these arbitragers, if that could happen more efficiently in some way then you really could clear out of Ethereum blockchain space and that wouldn’t actually hurt anyone, so there’s a lot of cases like that, and then there’s obviously applications on the chain that people…just they might think are outright bad, so quantities are one example, and there’s always a couple of them somewhere.
It’s complicated and I definitely think that the great majority of the activity is valuable and not the sort that you can just remove by coming up with a slightly better game in some way, but 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.
Laura Shin:
Speaking of complexity let’s now talk about Ethereum 2.0, which just for me, as 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 DeFi composability introduces a lot of risks because protocol creators can’t always foresee what other protocols will introduce, and so I just wondered do you think that complexity of Ethereum 2.0 does create a risk for the security of the network?
Vitalik Buterin:
It definitely does, and that’s a big part of the reason why we’ve been working really hard 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 leap for us, but at the same time there is definitely complexity that’s unavoidable in some ways. If you have a regular blockchain that everyone’s just validating everything, if you have a shorted blockchain then you need some kind of rules for figuring out who’s validating what blocks at what time, and that’s just more code that has to be in there that wouldn’t be in there if we weren’t charting, and there’s no way around it. Even in my proof of stake, for example, one of its disadvantages is that it’s definitely a bit more technologically complex because you have to deal with validators, you have to figure out what’s the process for validators logging in, what’s the process for validators logging out, and there’s a lot 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 to them.
Like what actually is the chance that something crazy is going to happen on-chain? I don’t know. It’s like how many people are actually going to be able to validate at the interest rate of nine…or reward rate of 9%? I don’t know. Look, these are the sorts of things that unfortunately you just can’t make answers to until you have a live running system, so I think t’s perfectly fair for a lot of people to just say we’re sitting out of the thing until it just runs by itself for one to two years, and that’s perfectly fine.
Laura Shin:
Yeah. Well. There are so many things I want to discuss around this, but let’s maybe just talk about Eth 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, 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 you 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?
Vitalik Buterin:
It’s hard to figure out what concrete actions could reduce price volatility, for example, right. And if you look at Ethereum versus a lot of these other coins Ethereum’s price volatility is not necessarily that high. It’s statistically definitely higher than bitcoin but it’s lower than a lot of these other smaller cryptocurrencies, and even the ones that say rah-rah. Look, we have a fixed cap and so you should trust us more. There’s some aspects of monetary properties of ETH that just can’t be engineered no matter how hard you try, but there are other aspects that you can look at, right.
One of the big discussions happening in the Ethereum community is this fee market reform debate around the EIP-1559 where basically it’s just a very significant proposed reform to how transaction fees work that basically says that instead of having a fixed block size and the transaction fee is constantly jumping around you would have a short-term variable block sizes and the transaction fee would be stabilized more and it would not move much between one block 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 it reduces issuance and potentially, if there’s enough transaction fees, it could even give Eth negative issuance, right.
If you look at the transaction fees on the Ethereum network the last two weeks it’s been somewhere between 2,000 and 5,000 ether per day and if you expand that out to per year then it’s looking like, well, 700,000 to 1.7 million ether a year, which is higher than the group of stake issuance that we’re expecting, right, so it’s actually…negative issuance is not even far outside the realm of possibility for Ethereum, and there is a lot of people in the Ethereum community that are excited about this and that actively want this to start, and talking about monetary policy, taking monetary policy seriously and all of these things, which is interesting, and it’s also a sign of the project’s decentralization in some ways. That kind of push toward taking Eth as monetary property is more seriously…was definitely not an Ethereum foundation thing, right. It was just these community members that just stood up and said hey, we have Eth and Eth is an asset, and you should care more about Eth asset and they’re not talking 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’s security goes down and the platform breaks, and that would be true in proof of work or proof of stake, right.
In proof of work if the price of Eth drops by a factor of 10 then suddenly Ethereum’s proof of work miners would have to go and compete with Ethereum classic and Dosh Coin, and all of these other coins, and when a coin stops being the dominant coin within its classic proof of work hardware then it becomes much easier for minors 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.
Laura Shin:
And what about you? What camp do you put yourself in, because you sort of talked about it as if you are not 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 as a researcher focused on security you would recognize that price is a lynchpin in the security of Ethereum 2.0.
Vitalik Buterin:
No, I definitely think price is important for security and is important for a lot of things. I mean, I think maybe one difference and emphasis is that if you have Eth and you’re interested in, basically, Eth as a get rich asset then you care about the chance and 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 ecosystems you can use to have funding, or for just plain old stability to ensure the utility of Eth then the thing you care more about is the price of Eth not dropping to zero, right, and those are two somewhat different kinds of, I guess, caring about the price, right.
Like one focuses more on maximizing the upside and the other focuses more on just minimizing downside risk, so I think there is definitely a convergence of goals there between people who hold Eth because they want to go up and people who realize that Eth having value is necessary for security, but there is also this other divergence as well, but in practice, I don’t think it ends up causing that much of a disagreement.
Laura Shin:
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.
Vitalik Buterin:
That’s definitely the current path, and this has definitely, also, been another one of the big debates for us. On the one hand, we recognize that there is meme value in having a cap, and there is a value in being able to say the price…or the market caps…the token supply will never go above 150 billion, or not one step backward from here, and even going out and saying crazy things like, if the Ethereum protocol ever changes so there’s more than 150 million Ether then it is no longer Ethereum, these things that coin supply maximalists say, which are obviously false but kind of motivational at the same time, and we are…our posture has always been to not go in that direction. Basically, our line is that ultimately there is 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…stability of the security level is more important than stability of the coin supply, but I mean at the same time we definitely recognize what we’re missing out on by taking that task.
I don’t know. It’s a difficult question. I think the community’s view has been like my own and a lot of people’s views, they’re definitely still in flux on this.
Laura Shin:
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 a tax on Ethereum 2.0 will be lower than in 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 admitted earlier you really don’t know, but wouldn’t it be better to err on the side of caution in this case?
Vitalik Buterin:
I feel like we have strong outside of view arguments to…or why attacking a proof of work change should be…or sorry. Attacking proof of stake change should be much more expensive than attacking a proof of work chain, right. The outside view argument basically is that if you look at what a proof of work mining rig does, it mines and it mines for maybe for maybe one or two years and then you have to buy another one, 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 one year, maybe one-and-a-half years of issuance, right.
So, basically what that would…or the cost of all of the mining rigs that are currently out there should target maybe a year to one-and-a-half years of issuance, right, because that’s roughly the time horizon within which those mining rigs are going to be actually working, kind of subtracting the electricity, and maintenance, and the Moore’s law, and all of those things, but with proof of stake if you have coins then the coins, our coin, is just burnt 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 outsets and the cost of the rewards 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 quick calculations on the cost of proof of work. I definitely got a number that was substantially lower than theirs, but it’s definitely a puzzle.
What’s int hat analysis, and there’s…I mean, I’d 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.
Laura Shin:
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 wonder if there was mechanism that’s similar to difficulty mining algorithm 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 death spiral type situations.
Vitalik Buterin:
Right. I mean, it’s a challenge right, because if you respond to…and the price is dropping by increasing the issuance space then you risk entering into another death spiral, which is price goes down. Print more coins, price goes down. Print both coins and you get…Ethereum goes the way of all of these hyper-inflating fiat currencies and so we definitely don’t want that, right. I think the challenge with…that charted blockchains do have is basically that if you have a blockchain where the capacity of the blockchain is N times bigger than the capacity of one single computer then ultimately you need to have at least N computers in the blockchain…somewhere in the network for it to be able to process all of those transactions, right.
I mean, actually, you would need somewhere more than N times 200 because you want redundancy, but you get how you need at least N plus some factor, right. The problem, of course, is that in the worst case if people stopped 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 is mathematical challenge here that sharded chains do have, and I think 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. We’re doing 64 shards with an eye to pushing up to 1,024 eventually and then some people might ask, well, why are you sticking this, what we call, quadratic sharding, just Q layer structure where you just have shards of shards. Why not just go all the way and have shards of shards of shards and then go up to infinity, and the answer basically is 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 networks can’t really verify anything and you’re kind of screwed again, right.
Ideally, of course, what you would want, actually, you would want a system that says if the price of the currency drops then…if the US dollar price of the currency drops then I dial down the capacity of each of these shards and try to dial down the number of shards, or whatever, and kind of scale down the size of the system, right, but the problem is that it’s hard for blockchains to have built-in price oracles. It’s hard to make oracles decentralized enough for a layer one, and so we have this problem where either a sharded system has to be smaller than it otherwise would be, which is the path that Ethereum is going, or a sharded system has to 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 Sybil attacks, and all of that stuff.
The economic price dependence is actually, basically, a version of that same problem, right. It basically says that if the price goes down a lot and so people are less 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 partially dealing with this, right. 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 Eth stakes would end up dropping, and once the amount of Eth stake drops below a certain amount, I think it’s either four million or eight million, I forget, 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 starts shrinking because of that, and so there is a bit of this auto-adjusting mechanics that helps stabilize the chain in that case, but it’s definitely far from perfect and there are just fundamental and possibilities that we have to whack again.
Laura Shin:
All right. Yeah, I guess this will be one of those things where we’ll have to see when it goes live.
Laura Shin:
All right. So, in a moment we’re going to talk more about issues regarding proof of stake as well as DeFi, but first a quick word from the sponsors who make this show possible.
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Laura Shin:
Okay, back to my conversation with Vitalik Buterin. I also got a good question from Tarun Chitra of Gauntlet 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 of individuals, in particular, find it profitable to be validators and they can’t realize economies of scale without professional validation setup, similar to what you get from Amazon web services, so how do you think Ethereum’s proof of stake system can be more democratic?
Vitalik Buterin:
So, I think there are two major differences in the incentive structure between Ethereum and a lot of these other chains, right, so one of them is that a lot of these other systems end up implicitly making the assumption, they expect that majority of their participants or a really huge number of participants to stake, and they set the numbers, and they try to basically create a situation where 80% of 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 somewhere between five and 30% staking as the level that we’re expecting/wanting with the one thing probably being a bit on the higher side of that, but if it’s lower that’s fine, too. So, that’s one part of the response, right, which is that we’re explicitly expecting there to be fewer stakers in a lot of these other networks and that’s fine.
The other part of the response is that our incentive structure is deliberately designed to be very forgiving, so a lot of these other chains they have staking inside their structure to basically say if you’re online less than 95% or 90% of the time then you start getting these penalties very quickly, and Ethereum is not like that. In Ethereum you can be net profitable even if you’re on offline 30% or potentially even 40% of the time, so Ethereum is basically designed, at least in terms of its incentives, for more immature stakers that potentially have their setup break more often, and that was a deliberate design choice. We’re definitely not deliberately trying to engineer for a high-performance network, basically because if you engineer for a high-performance then you risk creating incentives for everyone to start concentrating in the same cloud computing set up and then are you decentralized, are you really censorship-resistant, and all of these things, so in Ethereum we’ve made a lot of these conservative choices, like target the…the percentage online that we’re talking.
I mean, even the test desks are like off…they jump between 80 to 95%, I think, whereas I think Cosmos, or some of these other networks, they just constantly stay considerably above 95%. In other places the 12 second slot time, right. So, Ethereum 2 slot time is 12 seconds, and in the future, I could see a decrease into eight seconds or six seconds but we’re never going to go all the way to one second, whereas some of these other chains are, so yeah. There’s a lot of these, the tradeoff that we’re making, where we definitely refuse to satisfy a lot of people’s needs for be performance, and I think the result is more resilience.
Laura Shin:
Okay. Yeah, Tarun and his college…actually, I think it’s Alex Evans of Placeholder. They wrote up a great post on how staking actually lends itself to the kind of securitization that looks very similar to mortgage-backed securities. Did you see that post?
Vitalik Buterin:
I think I saw it, and I don’t remember too well. It was a while back.
Laura Shin:
Yeah, it’s about just lending. Yeah. I mean, granted, obviously, these products are more transparent because all of this happens in a smart contract, but they pointed out these are the kinds of financial products that did lead to the creation of bitcoin, so we were curious what your opinion was on that.
Vitalik Buterin:
Honestly, I’m less worried about staking and more worried about existing DeFi. I mean, I guess the thing with staking is that…and I definitely would expect the staking setups to just remain fairly simple because there’s…well. Basically, either you’re staking yourself or you’re giving your money to someone else who stakes for you, and maybe you can scrunch things beyond that, and you can say oh, here’s a slight…a contract and it gives 80%…the first 80% of Eth to the holder of one coin and the last 20%, which has more in a performance dependence to the holder of another coin, and then you can concentrate ownership of these tokens to represent, basically, interest and really high-quality staking and all of these things, but generally, 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 DeFi projects. They’re trying to get leverage on different assets and trying to get financial arrangements to satisfy very specific functions and yield farming, and all of these things or potentially those things plus proof of stake, right, so you could imagine…there is lending Eth but then you can imagine a system that allows you lend staked Eth, and if you’re lending staked Eth then suddenly it starts mattering, well, who’s doing the staking, so there’s definitely concerns.
I guess my big picture reason why I’m not too scared is basically that if we just maintain this really important property that says that if an attack happens then lots of coins get destroyed, right. If you just maintain that invariant that if an attack happens then five million coins that were responsible for the attack get destroyed somehow. That you know that, well, if the maximum that you can have is 10 attacks before half the Eth gets destroyed then at that point no one’s going to be interested in staking in any financial setup ever again, right, so this is part of why I’m really into security deposits, and penalties, and slashing, and all of these things even though a lot of other people are not. I just like this aspect that it basically lets you put a cap on the number of times the thing breaks, basically.
Laura Shin:
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 down that rabbit hole I actually want to ask you more about your criticisms of DeFi. What are your main criticisms and concerns?
Vitalik Buterin:
I think one big one is just that a lot of people are underestimating smart contract risk, and so I remember even a year ago there were people on Twitter, I think it was, making the case that hey, if you have dollars in a regular bank account then you’re making 2% interest and that assumes some kind of fixed deposit, whatever, and if it’s variable then it’s even less, but if you put your dollars into compounds and you’re getting 4% well why the hell would anyone choose 2% over 4%? Clearly, 4% is better, or even if you put your dollars in DAI back when it was 4%, 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% systems to be better than the 2% system you’d 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 -1%, and so I feel like there’s a lot of people that are just not fully taking this into account with some other calculations, and they might think that 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 DeFi 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, right, so that’s one thing, and so I think the main takeaway from that criticism, I guess, is that DeFi is still fine but 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 CEFI, as in the traditional banking system, has risks too, right, and there’s a lot of people who because of their specific contacts their money might get seized or their local currency might get hyper-inflated or all of 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 than, by all means, get into DeFi and it’s safer, or at least…when I say DeFi in this case I mean stable coins, right. Get stable coins and they’re safer, but if you’re just in DeFi to get 4% interest instead of 2% interest then it’s probably not something you should be doing, so that’s one thing.
The other thing is that there are sometimes DeFi things happening that are not very sustainable, right, so one big example of this is yield farming, right, so this is this big hot trend that we’ve been seeing recently, and you can often get these really high-interest rates. It was like 20%, 30%, 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. They’re either provided by compound or they’re provided by whoever else. 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, right. It’s a short-term thing and once the enticements disappear you can easily see the yield rates drop back down very close to zero percent, so that’s just another thing. That’s definitely not to say…that’s not something that could make DeFi break but it definitely is a sign that we should not necessarily be treating temporary advantages that we have now as reasons…or as things that we should be pushing out in front of the entire world as reasons why everyone should get into DeFi because if you push them out to the entire world then by the time people start getting into DeFi these temporary advantages are not going to be there anymore.
Laura Shin:
Well. So, I want to ask you how it makes you feel that DeFi right now, and yield farming, in particular, are kind of the main things that Ethereum is either used for, or at least known for, or it’s 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 all of those things have been the major use cases of Ethereum so far, 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 would like to see Ethereum being used?
Vitalik Buterin:
I definitely think that those things aren’t the only use cases, and I just keep discovering people using Ethereum for lots of other things, like there are people that just use Eth for payments, there is people that use Eth to just move money from one country to another. There’s even people using Eth for in-person payments. I even used Eth to pay at a restaurant in London a few months ago, and then you have prediction markets, like Omen, which is great, and then there’s Augur, 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-Ethereum communities that I’m 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 Nigerian person that was basically describing a proposal for a new spelling system for, I think it was, the Igbo and one other language that’s common in Nigeria, and when I read through that article I thought…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 thing, right, so that’s one example.
And then another example I just say, again, in the rationalistic community of people who are just starting to link to some of these Omen prediction markets more and more, right, so these things are…
Laura Shin:
I mean, I still think these are anecdotal, right? I mean, by and large, at the moment it’s DeFi and before that, it was ICO’s. I’m not trying to say it’s not used for these other things, but how does it make you feel that you’ve been a little bit…
Vitalik Buterin:
Yeah. It is used for those other things.
Laura Shin:
Yeah.
Vitalik Buterin:
My goal is to empower all of these other use cases that we like, and I guess hope that these more hype use cases are all…they might be big individually but they’re…just because they are still unsustainable individually they only each allot for one or two years, so it is a…it’s definitely a long game, right. I feel like the ratio of things that I’m excited about, too, just financial speculating things have definitely improved between 2017 and 2020, right. In 2017 there was this big ICO craze, and there were also off in the corner a couple of people using Ethereum for…well. What was it back then?
There was Augur, and Augur had a couple dozen users, and maybe there were people trying to make a DOW, and there were people just using Eth for payments, and in 2017 Maker didn’t even exist yet, or at least it wasn’t on-chain, it was just a project, right, and in 2020 ICOs kind of did their boom and bust and they’ve collapsed but now we have DeFi and we have yield farming, and I’m definitely not expecting yield farming to be a multi-billion dollar industry two years from now, or…I mean, unless of course you count staking as yield farming, like staking technically has yield but whatever it’ll be, it’ll be a much more subdued and boring thing. That’s a prediction I’m happy to make, but I think the more interesting use cases of Ethereum are going to stay and they’re only going to grow stronger, so that’s my hope. In terms of what we can do to help realize that hope, and I think one thing is to just help some of these other applications that advertise themselves and get more attention, and get in the community is one thing, and one thing that we’ve definitely been trying to do, but aside from that…just aside from the efforts to either help these applications develop or improve these applications and their social status, and there is definitely a limit to how much we can do.
Laura Shin:
What do you think is the most optimal way for DeFi projects to distribute their tokens?
Vitalik Buterin:
Yeah, this is a tough question, right, because I recognize the challenge that these projects are in, right, because if you’re going to launch with a token you have to distribute the token, and you have to distribute the token somehow, and in 2009 the cool thing was proof of work, and proof of work was very nice and democratic but now we hate proof of work, and proof of work is neither democratic nor necessary, but then in 2017 it’s like if you want to distribute your coins you sell your coins, and now I feel they’re not hip anymore, so what do you…then in 2018 and ’19 we had Airdrops. I mean, the problem with Airdrops, of course, is that you get nothing for them and it’s not clear how effective they are at actually creating interest for your ecosystem so it’s not…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 in criticizing some of these projects. I mean, there is a two-fold challenge, right.
One part of the two-fold challenge is basically that economics of building anything cyber are often very screwed up, basically because you’re building something that has a zero-marginal cost, right. You’re building something where it’s…there’s a lot of costs involved in just building everything out at the beginning, but then once you’ve built something then the cost of distributing each additional unit of ability to participate is close to free, and so it’s…but the problem is that if you just make your thing close to free then how do you pay for additional development, and this was one of the big problems of just the whole internet and launching a token was one way of finally being able 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 what can you do? Well. You can apply to the Ethereum Foundation and maybe the Ethereum Foundation will give a 250,000 dollar grant, which is already much better than three years ago where it would’ve given you a 10,000 dollar grant, but there’s still this difference between the scale of thing that people want to build and the scale of financing that you can support that way, so yeah.
I definitely understand that these project teams are facing some challenges and that we don’t have great solutions to direct them toward, so yield farming is…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. I think some level of this idea that if you have a project…some system and that system has a fee in it then refunding that fee in protocol, so it basically distributes protocol tokens to your users and that’s really nice and wonderful. There is a level of that which is legitimate. I think it becomes illegitimate when basically you’re refunding people more money to use the protocol than they’re spending to use the protocol, and so people end up just dunking their coins in and getting money out without actually using the protocol, and I think in the long run if projects knew that was going to happen, as in people were just going to professionalize farming and they’re going to say hey, give us our coins and…or give us your coins and we’ll just keep on sticking your coins into all of these projects that are offering rewards and we’re not actually going to be part of their communities because why should we.
That’s kind of the equilibrium that I think will happen, which is part of why I’m comfortable criticizing extreme liquidity farming as being unsustainable, but there’s some level of it, which…I think there’s some level of liquidity farming, which is fine. There’s some level of Airdrops which is fine. I mean, I’m looking forward to per person Airdrops as well. I’m even looking forward to sales with per-person caps even. I mean, DIA ICOs could still be done, or even just things that bootstrap into being DAOs from day one are also interesting. This whole distribute coins directly to developers thing is interesting. I mean Handshake kind of did something like that with part of their distribution model and I know…even just the concept of developer free mines, in general, is kind of that, but the problem with coming up with something in that direction that’s good is that you need a governance mechanism, and the government mechanisms are hard, so we’ll keep going. We’ll keep figuring out better things.
Laura Shin:
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 dollars’ worth of bitcoin is on Ethereum. What do you think is the significance of this trend and where do you think it could go?
Vitalik Buterin:
I think that there’s just a lot of people who want to both hold bitcoins and have the conveniences of Ethereum DeFi, and these bitcoin on Ethereum projects satisfy that need. I mean, I think in the medium term you could even see bitcoin on Ethereum getting into rollups and then we have a bitcoin hyper-scalable layer two protocol, so I think it’s a combination of DeFi demand and just demand…especially 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 and there’s definitely more and more people who are interested in straddling the line between the bitcoin and Ethereum ecosystems, both in terms of community as we’ve seen on Twitter 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 just realized that hey if we’re 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 one of the challenges, and one of my worries with these bridges is that basically the bridges are all right now trusted, right, so the problem is that bitcoin…the Ethereum blockchain can run smart contracts to verify the bitcoin blockchain but bitcoin doesn’t really have this advanced smart contract capability and so you can’t have bitcoin as addresses that verify the Ethereum blockchain, and all I could have is either single signatures or multi-sig and so the problem is that if you have one of these multi-sigs then you start having 557,000 bitcoins inside one of these multi-sigs then there might be an incentive for that team to run away and that starts becoming more and more of a systemic risk.
I guess one of the ways of thinking about this is that a lot of bitcoin people are very excited about liquid, but liquid is ultimately a permission consortium chain to use a Tim Swanson term for it. I just love using that term to poke people. It’s a permission consortium 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. That’s where I see some of the psychology of this being, but then if it gets much bigger then you do have this systemic risk issue, and then the question is well, how does this systemic risk end up getting results, right.
One possibility, of course, is that we start moving to these collateralized bitcoin on Eth things, like CBTC network, but the problem with that is that if you start going to 557,000 bitcoins on Ethereum then you need a huge amount of Eth to…you need literally half of all Eth, basically, being collateral for those coins.
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 taking matters into their own hands, and bitcoin miners basically pre-commit and they say we’re going to soft fork away…we’re going to invalidate any chain that include transactions that illegally withdraw from these multi-sigs without the permission of whoever actually owns those coins based on what happens on the Ethereum side, right. 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 site security concerns start becoming much less, and that would be just an interesting future to explore, even theoretically, but this all kind of going extreme in one direction, right.
The other direction, of course, is that this just all remains a fairly minor and niche interest of people and that there’s just…I don’t know. It keeps on being there. Activity keeps on happening, but the bulk of Ethereum activity continues to be in other pastures. I mean, that’s the more boring side and don’t let the fact that I spent five minutes talking about the exiting side and one minute talking about the boring side make you think that I think the exiting side has a five times higher chance of happening than the boring side. No, it’s not. It’s just five times more exciting, right. 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 probability of becoming really interesting and big, but on the whole, there’s always something that ends up making a big difference.
Laura Shin:
Let’s switch to talking about how the crypto space has become part of the geopolitical balance of power, I would say, in the last couple of 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 byte dance has the TikTok version, which is the version used outside of China, but as we’ve seen in the last few years China, obviously, has been perpetrating these human rights abuses with the concentration camps of the Uighurs. 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 nodes?
Vitalik Buterin:
I mean, I definitely don’t see how the BSN would have the ability to break the Ethereum network, and unless this is all somehow crazy five/four-dimensional chess, a front for some kind of 51% attack, but I see that chance as being very unlikely. I guess, the somewhat more realistic concern, of course, is that there’s nodes that are spy nodes and they’ll inform the Chinese government of what IP addresses are sending what transactions, and that’s not just the Chinese government concern, of course. The US governments and you don’t even have to go into conspiracy theories. There’s Chainalysis, the company, which is known to be working with US law enforcement, and it’s in their economic interest to work with other people’s law enforcement, too, so Ethereum users should definitely be operating under the assumption that at network level there’s a lot of spy nodes going around, and that if they want privacy they should basically combine blockchain level privacy with things like Tornado.cash or some of the better things that are coming out with network-level privacy, like if you have a transaction to send that needs privacy just hop on a VPN, or whatever, or it doesn’t have to be a VPN. It could be Tor. It could be any of these things.
No, that’s definitely one aspect that people should definitely be thinking about. Of course, the other geopolitical aspect of this is that blockchains are potentially the one environment where applications from all of these different places around the world can just have come on to the chain without…and they’re not going to just get immediately blocked by whatever country happens to not like them at that point in time. That’s interesting. I definitely think that the whole splinternet trends that we’re seeing with…obviously, it started with the Chinese firewall for a long time, and then now these potential concerns about the US banning TikTok, and then India banning 50 Chinese applications, and then Russia doing its thing, and now a couple of people in the EU interested in doing their thing. I definitely think that that trend is very harmful and it potentially really risks destroying the brightness and good that I think comes out of the internet, just as a way for the world to come together without that coming together, having to be intermediated by all of these politicians with big guns, and it may be…and of course the original internet, I think in a lot of ways, has just failed to live up to that promise, right, and especially because a lot of activity has just moved to these centralized corporate platforms, and the blockchain space has a chance of remaining the one part of the internet that’s not bad, which is interesting and could have a lot of complicated consequences, and of course…I mean, back to China.
I have no idea what people are going to end up using the BSN to build on Ethereum. It’s still very early and not clear. I mean, historically there hasn’t even been much institutionally sanctioned public chain activity at all so far, right. It’s definitely been more private chain oriented, but in a lot of ways the global mood of the crypto space has shifted from private chains to public chains, and so that’s one of those places where you have to pretty much either split off or adapt, so we’ll see. I definitely see that the space is entering dicey territory in some ways, but at the same time this is literally a space which was founded with, basically, a link to a news article that was criticizing a big financial bailout, so if you’re afraid of dicey-ness then what the hell did you think you were getting into.
Laura Shin:
In that regard I actually wanted to ask, also, about some of these other phenomena 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 US dollar. Meanwhile, we’ve also got the upcoming Libra, which through Facebook and all of the 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 cryptocurrency, so when you 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?
Vitalik Buterin:
Yeah, so I think there’s different ways to look at Central Bank digital currencies. There’s, first of all, the macroeconomic ways of looking at them and just thinking about what are they, will they end up displacing commercial banks and all of those issues? Another way to look at it is also just from a privacy point of view, which is something that a lot of people in the crypto space care about, and of course, nobody’s expecting DCEPs to be anywhere remotely privacy-preserving 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 change in what the government’s role is with respect to the monetary system, and it feels almost like a push toward government as an international platform, right, so this is something that, for example, Estonia has been trying to do for the last decade, right.
You have your e-residency and you can be an e-Estonian, and you can be part of this Estonian e-community even if you’ve never once set foot in Estonia the country, and they talk excitedly about how this is the future of government as a platform, and Central Bank digital currencies might end up being the first big mainstreaming of government as a platform. You could imagine things like DCEP being used outside of China. Now, I think China in particular will have challenges doing that than a lot of other countries just because of all of the trust issues, the politics, and all of that, but at the same time, it’s…especially if you look into Central Bank digital currencies more broadly. It’s something that you could imagine government’s creating digital currencies even specifically with the goal of them being used in a broader context, right, and so you could even imagine places like Switzerland saying hey, we’re going to create a digital coin and we’re going to just create the…basically use this to expand our influence on the global stage, and this could end up being a way for countries to make this political power push, and in terms of the consequences of this, I mean, jurisdictional competition is definitely great in a lot of ways.
I mean, they could easily give access to people who live in not very competent jurisdictions, basically access to services provided by international governments, and international entities that are much higher incompetence so…much more competent. Not much more incompetence. It’ll be interesting to see, I guess. And then the other thing that’ll be interesting to see is the extent to which it’s possible for these digital currencies to interoperate with public chains, right, so could you have a decentralized exchange between a CBDC and Ethereum? Maybe you could, right, because ultimately the number of things you need to have4 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 two systems even trustless-ly, and I mean potentially you could even do it in a way that’s very privacy-preserving, and so on the CBDC side it just looks like another transaction, and then there’s smart contracts on the Ethereum side to ensure that everything happens correctly.
Once you have decentralized exchanges between these systems then suddenly you have this much more liquid global financial environment, which would also be interesting to see.
Laura Shin:
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?
Vitalik Buterin:
I mean, I think, especially given that he was just going as an individual and he was very clear on that in multiple points, I guess…the big thing is that the Ethereum Foundation definitely has the for better or for worse culture of respecting its members’ autonomy, basically, and you can see it in a lot of ways. I mean, you can see that in foundation developers arguing with each other on Twitter, you can see that Virgil independently deciding that it would be cool to check out North Korea and seeing what their blockchain 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 a lot more good than harm for the foundation, and I definitely don’t think that there’s that many people that think Ethereum Foundation bad because Virgil did this North Korea trip.
That’s been my own general impression, right, that it’s…and in terms of the news that’s kind of happened once and implied it down after that. I mean, the long-term consequences of all of that whole trip in general just seem like okay, he went once and then there was another conference and he is not…obviously not able to go…or not able to go and I forgot. It might’ve even been canceled because of the virus, and then in the future realistically he’s not going to go to any of those either, and the things that they’ll do with blockchains are the things that they’ll do with blockchains, I think, regardless of who pops over for a visit for a couple of days.
Laura Shin:
Well. 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 unicorns and rainbows cryptocurrency, I mean, doing anything with or for what is the most brutal regime on the planet is, as Alex Gladstein of the Human Rights Foundation pointed out, the least cipher punk 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 Virgil to do that?
Vitalik Buterin:
There’s definitely people who were opposed to it from the beginning, and there was definitely people who were fine with it from the beginning. I mean, I guess…I don’t know. This is definitely one of those questions where it’s hard to be certain after the fact, and it’s even harder to be as certain ahead of time. I definitely think this view that because a country’s government does something bad means that you have to completely ostracize the country and you can’t even take one trip to a blockchain conference. Is it even necessarily clear that that’s true, I don’t know. I don’t know. I definitely don’t claim certainty that it was the right choice, and I think…also think that just going out to a different jurisdiction and including the unfriendly ones, and giving them a…and just taking a chance to listen to them is outright about saying, I think, that opinion is a bit too extreme to be able to say confidently, so…
Laura Shin:
I don’t think you listened to this podcast episode I did with a human rights activist in North Korea defector, Yeon-mi 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…
Vitalik Buterin:
No, I’m definitely aware there’s lots of very terrible things happening in North Korea. I’m not denying any of those things.
Laura Shin:
All right. Well. On a related note, I wanted to ask, also, about Steven Nerayoff, 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 later 2017. 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 the project?
Vitalik Buterin:
Steven is definitely a separate case. Ethereum before about 2015…there’s definitely, the 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 tell apart good people from bad people, and pretty much everyone seemed reasonable to me, and so at the time I definitely didn’t have the ability to detect the problems in someone like Steven Nerayoff, and since then the Ethereum Foundation has gotten much better. Since then a lot of the 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, in general, we’re very happy with, and I’m definitely not willing to allow Virgil to be put into the bad character bucket just because he was more geopolitically openminded than a lot of other people. I’m very happy to burn reputation for defending him to some extent there.
No, that’s definitely not the same thing as what Steven did, which involved huge amounts of fraud and behaving in definitely…ways that made women around him very uncomfortable, at the very least, and all of those things. That’s a shady character, and I’m definitely happy I’m better at that. I think the Ethereum Foundation is better at detecting him then it was at detecting a lot of other people. I don’t know. Virgil is still a friend and I’m looking forward to him no longer being in house confinement soon.
Laura Shin:
Over the years the Ethereum Foundation has also come under fire for being unusually opaque, which is seemingly at odds with the purported transparency of the blockchain world. 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?
Vitalik Buterin:
I definitely would have dispute the charge that the Ethereum Foundation has been this incredibly opaque organization. I mean, first of all, there’s all of these bi-weekly very frequent updates from each of the individual teams on the clients, and the individual projects that 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, and regarding org charts, I think…I mean, the challenge there is just the Ethereum Foundation’s organization is definitely not conventional in a lot of ways, and so it’s hard to communicate that, right, and the formal chart is not even necessarily going to reflect the underlying reality of how people interact with each other.
I remember something a year ago, I think it was…I think it was Virgil that published an actual chart of basically who talks to whom in the Ethereum Foundation, and that chart was basically automatically generated from the results of giving people surveys and the ended up just being a much more accurate description of who does what in the Ethereum Foundation than any kind of description of a formal structure could’ve been.
Laura Shin:
Was that made public?
Vitalik Buterin:
I don’t remember. This is something that I’ll probably have to look up, and I guess the larger point is that there’s a lot of people 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. 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 the different project teams and what they’ve been working on, we publish fairly regularly what the Ethereum Foundation’s financial situation is and all of these things, so if people could just say in more specific and explicit terms here is one thing that I don’t know that I would like to know, and that’s definitely something that I think would definitely help me and help us a lot.
Laura Shin:
On Twitter Anne Connelly, who’s 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?
Vitalik Buterin:
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. We have a lot of different kinds of people on different layers of our team, and a lot of people from the US, and we have Ayako, who is our executive director, and she has been pushing in a different perspective and focusing on inclusion, and a lot of these other things. We’ve had some teams in Europe, some teams in Asia, some teams increasingly…a couple of people based in India, so on that dimension there is definitely a lot of things that we’ve tried to do. I mean, I’m sure that there’s entire communities and subcommunities that we’ve just completely failed to reach out to and integrate with, and last year we’ve tried just to get into the African community more, for example, but even still there is a lot that we’re missing, I’m sure.
I guess the challenge there is just that any organizations in any communities eyes are ultimately limited, and so if you think there is groups of people that the Ethereum ecosystem has been ignoring then that’s something that I’m sure, once again, we’d be very happy to hear about and it’s something we always appreciate getting help in. I mean, there’s also just a kind of current that we have to deal with and sort of…just in terms of what kinds of people by default get interested in crypto by themselves, right, like crypto tends to be heavily US-focused, heavily focused on wealthier people in the United States especially, a very particular demographic that are interested in computer science, and monetary theory, and all of these things, so there are groups that have tried to make Ethereum relevant for other communities like there’s all of these different exchanges in different countries that just try to support people using Eth as a way of moving money around.
I mean, to give a more dicey example there’s the stuff that Ameen has done around sex workers, which is definitely far away from the kinds of communities that crypto typically reaches out to, even though sex worker communities definitely have a lot of problems around just getting discriminated against in a whole bunch of ways.
Laura Shin:
Ameen Soleimani.
Vitalik Buterin:
Yes, Ameen Soleimani. Yeah, I guess, we’ve been trying. We always welcome pointers on who we can be…who we’re missing and who we can reach out to better.
Laura Shin:
So, here we are five years after the launch of Ethereum. Where would you like to see Ethereum go in the next five years?
Vitalik Buterin:
Getting Ethereum 2.0 done is really important. Yeah.
Laura Shin:
Hopefully before the end of the next five years.
Vitalik Buterin:
I think Ethereum to the point where that list of applications I mentioned earlier, the things that I’m excited about people using Ethereum for, would…actually is something that 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, in a lot of different contexts and isn’t just something by and for Ethereum people. Yeah, and I think getting the technology to that point and just getting to the point where you actually have lots of people in lots of places from around the world deriving value from Ethereum and just getting both of those two things done I think would be a great place to be.
Laura Shin:
And do you have any general predictions about crypto that you want to make about the next five years?
Vitalik Buterin:
I don’t know. Well. There are things that I can say. So, one thing that I can say is that on the research side of the crypto space has definitely already made a very sharp move away from being hey, let’s think in very abstract terms and let’s figure out just what things exist in the first place to just okay, we know exactly what can be done and what can’t be done and let’s keep just making improvements to the things that we know that we can do, and a lot of Ethereum research has moved into that second category already. A lot of Ethereum research around like sharding, proof of stake, zero-knowledge proofs, all of these things have already moved into that more incremental category, and I think five years from now we’ll be even further there. I think right now we’re in that transition from abstract research to development and optimization, and I think five years from now we’ll be thoroughly in an 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 a part of people’s lives that everyone just expects to exist, and that’ll be a good change in a lot of ways.
Laura Shin:
Great. Let’s hope so because currently, my friends think what I do is kind of weird, but anyway. So, where can people learn more about you and Ethereum?
Vitalik Buterin:
Ethereum.org.
Laura Shin:
Perfect. All right. Well, thank you, so much, for coming on Unchained.
Vitalik Buterin:
Thank you.
Laura Shin:
Thanks so much for joining us today. To learn more about Vitalik 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/c/unchainedpodcast and subscribe today.
Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss, Josh Durham, and the Team at CLK Transcription, Inc. Thanks for listening.
