He was born in Russia, immigrated to Canada with his parents at the age of six, and had already mastered multiple languages, mathematics, and engineering by the time he got to high school. At age 17, his father introduced him to Bitcoin. He couldn't afford to buy it, so he wrote about it instead. And while he found Bitcoin fascinating, he felt like he had an even better idea. In 2013, Vitalik Buterin wrote the original white paper that conceived Ethereum. Not just a digital currency, but an entire network built on the blockchain. It's now worth more than $300 billion. And the biggest believers claim it will send the rest of the cryptocurrency market into the ether. Joining me on this edition of Bloomberg Studio 1.0, the inventor of Ethereum, Vitalik Buterin.
We're going to talk about Ethereum, but I want to start first with how you got here. You were born in Russia. You immigrated to Canada with your parents when you were just 6 years old, and you started learning about Bitcoin from your father. What is it about Bitcoin that hooked you both?
Bitcoin is really interesting because of how interdisciplinary it is. I was very interested in math and computer programming and cryptography and technology. I was also very interested in economics and kind of politics and philosophy and Bitcoin just happens to be this interesting fusion of all of these things, right? And at the same time, it's not just a piece of code that's there for fun. It's not even just an app. It's something that's really intended to have a very big and meaningful impact on how the world works. And so I think both just having both of those aspects together definitely made Bitcoin very interesting to both me and my dad.
As I understand it, you didn't have enough money to mine. So you wrote about it instead and in 2013 you wrote the original white paper that became the basis for Ethereum. What was it that sparked that original vision?
So I joined the Bitcoin space in early 2011 and I wrote the Ethereum white paper at the end of 2013. That was the time when things first blew up and it was clear that this was something that's significant, right? Like I remember going to the Bitcoin conference in San Jose which had about a thousand people in it and that was when I realized that hey this isn't just a bunch of weirdos who only exist on the internet. Like this is real. There's people trying to actually do things. There's people building businesses, a lot of which are actually pretty successful. What started happening then was people started thinking, well, we have Bitcoin. What next? Right? So, what else can you do with blockchains? Like, what would Bitcoin 2.0 or cryptocurrency 2.0 look like?
As I understand it, it wants to be a whole new operating system like a new Apple iOS with a ton of apps built on top of the blockchain. In the simplest terms, what is Ethereum and how is it different from Bitcoin?
So, Bitcoin is a blockchain that's designed for one application, right? Which is like maintaining and letting people use Bitcoin, the currency. Ethereum is a general purpose blockchain. So instead of being a blockchain that's designed for one application, Ethereum is a blockchain that supports a built-in programming language and whatever blockchain application you want to build, you can just write the logic of that application in the programming language, upload that program to the chain and this becomes what we call a smart contract and anyone can then interact with your application and the blockchain interprets the rules of your application for you. So instead of being something that's designed to do one thing, it's designed to open up space for creativity to basically let people do whatever thing that they want to do on top of it.
So is the idea then that the next Facebook or Twitter would not be owned by Jack Dorsey or Mark Zuckerberg, but be built on the blockchain and owned by everyone?
There are multiple projects already trying to do that and lots of them are based on Ethereum. So yes.
So then is Ethereum a threat to established centralized companies and social networks like Facebook, like Twitter, like Google?
I think it can be a threat but it can also be an opportunity. Like I think even Jack Dorsey himself, right, he has this project called Blue Sky, which is trying to figure out how Twitter can kind of incorporate decentralized elements. And I mean, I think a lot of these projects want to actually do this, right? because I think a lot of them are realizing that being a kind of centralized focus of power and having control and of so much of everyone's data and all of these things, it's not just an asset. It can also be a liability as well.
Now, we still don't know who Satoshi Nakamoto is, whether that's even a single person or a group of people. What is it like to be a known and visible figure behind such a popular technology?
I mean, there's definitely times when I want to be less visible. But I guess that comes with the territory.
Why do you want to be less visible? I mean, one of the other Ethereum co-founders, Anthony Di Iorio, recently announced he's quitting crypto because of safety concerns. I mean, is that part of your concern as well?
I mean, it's not so much physical safety per se as just wanting the ability to also, you know, have a life and not just have like random people running up and saying, "Are you the Vitalik Buterin?" I don't know. There's definitely times when I find such things annoying. And so, I don't know. I'm likely to keep wearing my mask in lots of places and that has nothing to do with COVID.
There was a lot of debate early on about what Ethereum could be, would be, should be, for-profit, nonprofit, one out. And I know that that was really important to you. Why did you want Ethereum to be a nonprofit and how did you come to that decision?
It was just very important to me that this is a technology that's decentralized infrastructure that's meant to be not controlled and not owned by anyone and it's a platform that's for the world. And so for that platform to be connected to a company that had a very small number of shareholders, I think is something that could really centralize the ecosystem. And so it was something that I thought was very unhealthy and wanted to really avoid.
Now NFTs in particular have really helped bring new users into the crypto tent. We saw you at Ashton Kutcher and Mila Kunis' kitchen table. You also were not happy about Kim Kardashian getting involved. And I'm curious, where do you draw the line when it comes to celebrity endorsement?
The thing that I was unhappy with about Kim Kardashian was that she basically shilled something like Ethereum Max that was, I'd call it a borderline scam, right? It seems like this project that's basically just at best a pure money grab that's not really providing much of value.
Ethereum has had some growing pains whether it is high transaction costs, traffic jams, front running. Why do these problems exist?
This is the scalability problem. Everyone's been talking about the scalability problem for at least 5 years now. And basically it's a simple supply and demand problem, right? Like if the number of people who want to send transactions goes up, but the amount of space for transactions on chain doesn't go up, then all of these people who want to send transactions are bidding against each other, and only the ones that are willing to pay a really high amount can actually get in. The only way to solve this is to just improve the technology to increase the number of transactions that the system can process. It's why we've been doing just all kinds of incremental improvements to the blockchain clients and the protocol and the code over the last 5 years. Ethereum scalability has increased by about a factor of five since the project started. And then there are some problems that are not just scaling problems per se, but there's still technology problems, right? Like there are problems that have to do with the fact that this entire ecosystem has blown up and gotten big fairly quickly. There's a lot of aspects of it where people are still trying to understand what is the correct way and what is the safest way to do these things like for example the state of just security auditing for blockchain protocols, it has gotten much better since the DAO hack back in 2016, right? But at the same time challenges continue to exist and that's normal in any space when you have usage growing faster and then the technology catches up.
Can you contrast proof of stake with proof of work. Why do you think that's so much better?
The reason why blockchains need to have proof of something, right, is because these are decentralized systems. So, for example, in proof of work, the system actually measures how much computing power is being put into each block. And so, in order for an attacker to take over the network, they actually have to have more computing power than the rest of the network combined, right? Like so you can't just spin up a billion virtual machines on one computer. But the problem is that it requires a huge number of computers to be constantly running 24/7. So it works but it's very expensive. Proof of stake works differently. Right? So proof of stake works by instead using coins as the economic resource. So if you have coins inside of the system then you just sign messages with those coins and for an attacker to take over they have to basically have more coins than the rest of the network put together. So it does the same thing but it avoids the need to have these computers running 24/7 and that's where the efficiency comes from.
You're planning major upgrades meantime and ETH 2.0 is well underway. What will that accomplish? What problems will it solve?
So I think what people call ETH 2.0 has two big parts, right? One big part is the switch to proof of stake so after a full transition to proof of stake there will not be any more mining, Ethereum's energy consumption will go down by a factor of more than 1,000 so it'll go from being a big problem to basically not a problem at all and the chain will become more secure, more efficient. So after that the next major milestone is what's called the merge, which is when basically the proof of work chain just stops running and all of the applications on the proof of work chain get moved over to the proof of stake chain and continue running inside of the proof of stake chain from there.
Now, while you're working on all of this, Ethereum has developed an unseemly reputation as a fertile ground for scams and I'm wondering how concerned you are about a crackdown like we saw with ICOs. What are the longer term consequences?
There's definitely going to be crackdowns on things happening on blockchains just like there's crackdowns on things happening on the internet. I do think that the state of the industry and the state of things is improving. But if you just compare it to the way that the space was like five or eight years ago, right, like 2014, remember Mt. Gox just collapsed and half a billion dollars disappeared and I think we still don't know where most of it is and things do continue to happen from time to time, but just as a fraction of the scale of the space, I do think that it keeps getting smaller and smaller. One big consequence of course is that mining is moving out of China which, I mean, there's definitely a silver lining there in terms of decentralization in that you don't have as much hash power located in one country anymore. But at the same time the mining farms there were real companies with real employees and real people. Some degree of regulatory action is happening, but it's not looking like anything close to the level of say what people feared 10 years ago.
There's concerns about Russia being behind a spate of cyber attacks and cryptocurrency being used as a tool of extortion. How do you think about the intersection of crypto and cyber warfare?
