The next supercycle, with Joseph Lubin, Ethereum co-founder

Hey, Mark. Thanks for having me on.

Consensys headquarters. Well, Consensys headquarters is Planet Earth. We're a very remote company. We do have some offices around the world, but since COVID we essentially shut down lots of our offices around the world and we gather in some offices, smaller offices and at different events around the world. And the mood on Slack is reasonably positive. There's certainly some awareness that there's volatility in the global economy that is translating into volatility in our ecosystem and it's never fun to see crypto prices go down. But it doesn't really reflect how well the Ethereum technology is doing, how well the Ethereum ecosystem is doing, and how well Consensys is doing. So I think we're balanced as we watch markets face some challenges. And it's obviously not just crypto markets that are facing challenges.

Also up an infinite percent from its all-time low. It's like, as the Trump administration won and came into power, there was a massive surge in the Bitcoin ecosystem and related ecosystems. And so people tend to focus on the negative news more than the positive news to some degree. And really this is all about the volatility that we are experiencing quite naturally as we move into the end of the current 80 to 100-year super cycle. So things are cracking up and the volatility will translate into cryptocurrencies but the next super cycle is essentially going to be based on decentralized protocols and AI. And so it's not like we're falling apart as we collapse and die. It's like we're oscillating and growing stronger and stronger ultimately. If you squint your eyes and look at a semi-log chart of Ether or Bitcoin, it looks like a pretty straight line actually up and to the right.

That was well said. So I can frame that in a bigger picture. Essentially there are a lot of economic philosophers that have framed super cycles and usually they're 80 to 100-year super cycles. So Ray Dalio has studied many cycles economically. Strauss and Howe put together a theory of generations where they have a saeculum that's an 80 to 100-year super cycle consisting of four generations. There's Peter Turchin has a theory of over supply of elites. And so it all comes down to natural behavioral patterns that cause somewhat inevitable economic oscillations or outcomes. And so the previous super cycle ended as the world sort of crashed into World War II. And World War II was in Strauss and Howe terms the fourth turning or the final generation of a super cycle. And that's an era where everything in the previous super cycle just breaks apart, smashes into walls and all trust has already been lost and everybody's fighting it out for positioning in the next super cycle. And so America was the strongest economy, the strongest navy, had a functional military industrial complex coming out of World War II. And so it was in a position to write the rules of the rules-based order. So it's really America dominating the super cycle. America was concerned about the Soviet Union and it put together a strategy of containment. Essentially it constructed NATO and did its best to contain the communist scourge in the Soviet Union and around the world. And so that sort of dominated maybe the first half of the super cycle and maybe technology dominated the second half of the super cycle where big tech, all the different industrial complexes whether it's the censorship industrial complex or the pharmaceutical industrial complex or education or scientific publishing. They're all big business that essentially started to wrest power from governments and big corporations have been running the world more than they have in previous generations, previous eras I would argue. So as this super cycle moved into the second and the third generation, by the third generation there started to probably appear cracks in the new system of the world that emerged in the first turning of the super cycle where there was this new hope, this new social contract and the world began to grow again with optimism and sort of trust in the institutions that were established. And so that moves forwards until things like technology make the system of the world no longer ideal for serving the people and organizations of the world. And so we moved into an era where the cracks just appeared in the 80s and 90s and I would argue that big tech, social media, etc. created weapons of mass manipulation. And those weapons of mass manipulation were made use of by all sorts of actors including enemies of the United States of America and the polarization that was introduced into political systems and into social network and social media systems has caused essentially a tearing of the social fabric on the planet. America suffers from it but so is everybody around the world really. So we are careening towards a brick wall at the end of the current super cycle. Institutions are falling apart. There's way too much debt in the system. And so we're in this era of excessive money printing in order to financially repress the population. You need to pay off the debt with cheaper money and that leads to a disparity in terms of wealth. It leads to nihilism or loss of hope amongst many people in the world. And so we are facing some great difficulties at the end of the current super cycle and we need a new hope essentially. So ideally we avoid a kinetic World War III, something where there's extreme physical hostilities although we're seeing a bunch of that around the world as different nation states position themselves but ideally we can via the use of decentralized protocols via the invention of decentralized trust and the implementation of decentralized trust. First it was invented by Satoshi and operationalized in Bitcoin but then Ethereum in my opinion and as expressed by Vitalik is the most powerful expression of how we can bring decentralized trust to all the systems of the world not just to certain aspects of money and so we have a chance of getting through this mess. We're going to have to print a lot of money so nation states can pay down their debt. That's going to be positive for certain assets around the world including cryptos and precious metals etc. as we're seeing and we have a chance of making use of artificial intelligence to enable us all to have access to the wisdom and best practices of humanity so that we can all level ourselves up on any topic in real time and have AI allies that can enable us to do pretty incredible things in short periods of time and essentially create a new kind of economy that enables people and communities to have economic, social, political, financial empowerment and agency in their lives. The problem is as we crack up there's going to be incredible volatility in the dissolution of the old system and the startup or instantiation of the new system which should be dominated for a little while by AI and decentralized protocols.

I think the idea that asset classes and technologies are very distinct is the current concept, but I don't think it's going to necessarily prevail for that long. Even asset classes are currently partitioned. They're structured differently. They trade on different exchanges. And so we are moving into a world where virtually everything will be financialized, where many of the financialized things will be gamified. So I think we're moving into a world of markets for everything. And that might seem concerning to some people, but markets are really the most efficient structures for price discovery and for decision-making. Ronald Coase created a theory of the firm, Nobel award-winning economist and his thesis was that there are all sorts of costs in organization and coordination that can be reduced if you bring a whole bunch of people into a firm, into a corporation and the proper size of the firm was just big enough so that you can reduce your costs in these internal coordination issues and when you can make use of markets which are more efficient then that constitutes the boundary of your organization. So we're moving into a world where the coordination costs of doing virtually everything are dropping dramatically. I have an intelligent agent, a digital twin that works with me in an intimate way and coordinates my access to lots of different agent experts and large language models etc. I can do a lot of things with the corporation of one person and a bunch of agents. So I don't need janitorial staff and typing pools and giant sales forces etc. And so that's a world that will be saturated with AI and it's a world that will sit and benefit from the immediacy, the instant settlement of transactions, the use of lots of tokens for native blockchain assets or real world assets. So in a world like that, it's going to be really hard to separate the technology or the use cases or virtually anything from the underlying financial elements, the asset classes that are so intrinsic to everything that we do.

Well, I can't take you back to the moment of inception because that happened in a very centralized way in one person's brain. It happened in Vitalik's brain and he was traveling the world working on different crypto projects. It was his will that there were a bunch of projects in say 2012, 2013 that did have the insight that hey this new invention of decentralized trust, one of the most profound inventions in human history, that should be applied to much more than just Bitcoin, much more than just money. And so all of those projects had articulations that were suboptimal. So you'd have to potentially build new use cases directly into the protocol. Vitalik's innovation was that we can just put a virtual machine at every node of a rigorously decentralized network and then normal software engineers can come along and they can build any application that could be deployed on this decentralized network. So that was the inspiration. It was such a powerful and well articulated vision that a lot of us got really excited about it instantly and glommed onto the project and self-selected ourselves as team members of the Ethereum project and so there wasn't a process for hiring people, there was no coordination really, there was no structured interview process, nobody was rejected saying no you can't become part of the Ethereum project. You're not hired. There was over a hundred volunteers at different points in time in that first year. And I would argue that that's why Ethereum was successful. If we had say taken some VC money, it would have had a totally different vibe, shape, architecture and it would not be seen to be essentially of, by and for the people. It would have been a carefully controlled business designed to build a product, find product market fit and win the market essentially. So the fact that it was open, community-driven, essentially conceived of as a civilization-scale technology rather than a business that had to achieve profits. I think that's why it has effectively won. So you could argue that Apple and Google are maybe civilization-scale technologies right now but this is more like TCP/IP or HTTP, HTML etc. This is, Ethereum is the biggest part of web3 and as such it's a natural evolution of the internet and the web1 and web2 protocols.

Well, in general in our ecosystem, we have permissionless innovation and tremendous waves of innovation. Consensus protocols were an innovation started with Kerberos in maybe 2001 or something like that, distributed hash tables. Bitcoin was an innovation in various ways, marrying decentralized peer-to-peer networks with economic incentives, creating a cryptocurrency, the first decentralized cryptocurrency at that point. Ethereum brought a computationally complete virtual machine. We started building token standards. We just invented tokens that you could build on Ethereum and then token standards and we had this idea of capital formation in the DAO and then ICOs, these public permissionless launches. Decentralized finance was an innovation. NFTs were an innovation. Memecoins, for what it's worth, some of them are actually really cool, they're an innovation and some of those innovations were contortions caused by an SEC that was and US government that was trying to kill our ecosystem and didn't help us build healthy structures for capital formation and for organizing companies on blockchains. And so I would argue that alternate layer 1s, I would argue that different formats for layer 2s being built on Ethereum are part of the constant wave of innovation. Most of these innovation waves end up with some sort of revelation which is very exciting. This is going to change everything. Everybody buys into it because everything is tokenized. Everything exists on live monetary rails in our ecosystem. So it makes it exciting to build in our ecosystem and also fraught at times. And so you have this great set of projects and or one project and then you've got a bunch of copycat projects which are not so good and then you've got the exploiters come in and they copy and they essentially harm lots of people by pretending that they're doing this same good thing. And so you get a blowoff top and the market corrects wickedly and people feel harmed and hurt for periods of time and stay away for a little while. So you're going to see the waves of innovation come faster and faster in our ecosystem. So, we're having a wicked sell-off right now and we had a wicked selloff in October 10th and that's largely because of the extreme oscillations as we move into the end of this global macro super cycle and geopolitical super cycle. Layer ones, some of them will stick around probably and a lot of the layer 2s I think will stick around, but even the layer 2s are going to have to reformat some of their thinking. I think a layer 2 rollup construct is incredibly valuable to be used as a partitioning system or to bring a new technology into the Ethereum ecosystem. So, our Linea layer 2 ZK EVM technology is in my opinion incredibly valuable because it is 100% compatible with Ethereum and because we've constructed it to be the most enterprise-friendly blockchain system in the Ethereum ecosystem. We can't say that much about this right now, but major institutions are using it currently or kicking the tires on it and it is likely to become the canonical enterprise Ethereum layer 2 blockchain and so having layer 2 blockchains that say nation states can adopt. So Switzerland doesn't want its data to leak out of Switzerland. That's a law or a set of laws. And so Switzerland might want to set up a layer 2. And this is just hypothetical, set up a layer 2, and then all the Cantons could have their own layer 3s or something like that. So they could have an integrated cantonal national infrastructure and that would be plugged into layer 1. If you were asking whether we're worried about Ethereum killers, no, we are not worried. There was a special period in time when something like Bitcoin could be developed and grow and become successful. There was a special period of time where a project like Ethereum could be formed and grow and have the runway and the patience and the brilliant participants and different supporters to grow an ecosystem to grow affordability in block space to grow scalability while still adhering to the core principles of the technology which is rigorous decentralization, credible neutrality, censorship resistance. So there's no, I don't think there's any way that any VC funded project or even token funded project currently could come close to rivaling the magnitude of what Ethereum is currently because there's just so much has been built over the 10 and a half years that Ethereum has been running non-stop. So feeling pretty good about Ethereum and I do think that lots of innovation will be really valuable and I look forward to maybe some layer ones but hopefully lots of layer twos.

Who are these critics and when did they say that? Because there's a new Ethereum Foundation in town and they're doing some pretty impressive things. So Ethereum Foundation is drastically reformatted. Executive directors are doing a very good, very energetic job of reaching out, being available. I think Tomasz has been traveling the world. I think he said something like a few hundred people that he's had meetings with over the last roughly year as he makes a concerted effort to make sure that everybody knows that he's accessible and that the EF and he are listening. There are many new groups filled with new talent being spun up and they're focusing on privacy. They're focusing on quantum safety. They're focusing on enterprise. There is an enterprise focused group. I spoke with Tomasz maybe yesterday. I know that they are plugged into things that global financial infrastructure cares about and they're working to help facilitate that as we are at Consensys. So I'm very happy with the directions of the Ethereum Foundation and the sort of shift. So there was a shift midway last year in sentiment in the Ethereum community. And so I think that was partially organic, partially because price went up because price always drives narrative. And partially because the Ethereum Foundation really did a beautiful job of reformating itself and a lot of that was driven by Vitalik and Aya where they'd been working on that for about a year and yeah so they picked up on the necessity and the timing was great the execution was even better.

That's like saying what's the right kind of project to put on the internet. So the internet essentially subserves the bulk of the global economy and as more people appreciate the value of decentralized trust which is going to be a massive accelerant for the global economy. Essentially reducing many kinds of risks in financial and other kinds of transactions and accelerating the velocity of many things in the economy. So Ethereum is a general purpose decentralized trust technology and you can build anything into it. You can tokenize protocols where the token is native. They can be DeFi protocols. They can be things like prediction markets which I think are going to be absolutely giant. You can build entire businesses. You can build infrastructures for communities of AI agents, things like that. It's just hard to answer a question that is so general. Anything, let's say, anything that would benefit from better trust is a good candidate for figuring out how to build itself on Ethereum.