149 - Ethereum in 2023 with Vitalik Buterin

I think it's important to just remember 2022 both not just for the massive failures but also for the amazing technological and adoption backdrops that we've had and I think even the first inklings of cryptocurrency and blockchain space's ability to actually have very significant positive impacts on the world.

Thank you so much guys. It's great to be here.

So 2022 has been I think a complicated year, right? I think a lot of people are remembering the year for all of the terrible stuff that's happened and within the crypto space for all of the multi-billion dollar blow-ups, but I think it's also important to remember all of the various positives that the crypto space has seen, right? So the merge, I think is the most recent one, but the big one, right? This is something that Ethereum has been waiting for pretty much since its inception, right? And it's been delayed and complexified and turned out to be more complex than we thought and lots of things have happened, but you know, now finally as of September 15th, I think it was 06:45 UTC, you know, we actually have a proof-of-stake chain, right? And you know, doesn't it just like feel good to be able to say like you know, not Ethereum is going to reduce its energy consumption by 99.9%, right? Like we're literally talking about going from a level of electricity consumption similar to the country of Austria to a level of electricity consumption similar to the entire country of I know, maybe San Marino, maybe Vatican, like one of those. Right? So, you know, huge success also from the just protocol security point of view. Even a huge success from the usability point of view, right? So, like a lot of people don't realize this, but the merge was actually a transaction inclusion time decrease, right? And this happened for a couple of reasons. One of those reasons is actually the easier one to understand, which is that, you know, blocks have thousands of attestations that are coming on top of them, and so you have thousands of confirmations happening in parallel. And what that basically means is that a few seconds after one single block comes, you have the equivalent of what would in proof of work lanes be considered hundreds of confirmations, right? Like if you go to etherscan.io/blocks_forks, right? And the most recent forked block was 6 days ago. In the proof of work era, there would be multiple of these every hour, right? So, that's the first reason. The second reason is that because block times now are, instead of being this like very random Poisson distribution thing where you know, sometimes you have a block every 2 seconds, sometimes you have a block only after a minute, here we have a block in a nice regular pattern of 12 seconds. And what this means is that on average, you only have to wait 6 seconds for a transaction to get included, right? Now, this all sounds theoretical, but just from my own very practical experience, like my experience of using Ethereum has just improved massively. It's like, you know, night and day compared to, let's say you know, July 2020 before all of this stuff ends, before EIP-1559 happens, right? Like these days when I send a transaction, I click send, I wait a couple of seconds, and then I see, oh, that transaction got included into one block and it already has one confirmation. Like, it's not quite competitive with you know, web two. Oh my god, let's pay $35 million so the latency is 184 milliseconds instead of 212 milliseconds as standards, but it's like already good enough to be competitive with say credit card point of sale systems, right? And that's something that I think is really important to appreciate. Like, there's been just this massive increase in the usability of the base of the Ethereum chain that's happened pretty much under our noses and EIP 1559 was the first half of this, the merge was the second half of this, and you know, the third half of this of course is going to be rollups that have pre-confirmations, which is coming next year. And later on we'll talk about how I think 2023 is going to be the year of rollups actually hitting stage one of trustlessness, which will mean that Ethereum actually finally is in its scalable era, right? But before that, so the merge happened and the merge was amazing. 2022 was also the year of ZK-EVMs, right? So, five years ago the zeitgeist basically was that oh, there is this fancy thing called ZK-Snark technology and like maybe theoretically it could make abstract proofs and you can turn things into polynomials and like put stuff on top of stuff and maybe eventually verify an Ethereum block, but like come on, it's so high overhead it's going to take like literally four weeks to make a proof and four years to actually audit the code to do any of that, right? But fast forward to 2022 and we have multiple ZK-EVM implementations that are all promising some kind of mainnet launch next year. Like, this is amazing, right? Like, ZK-EVMs have just gone from being a non-existent pipe dream to being the I think clear manifest long-term and possibly even medium-term future of scaling Ethereum. Right? So, that's number two. Then, you know, on the adoption front, right? Sign in with Ethereum has seen massive, you know, gains in adoption. Ethereum, I think, was in a great position to take advantage of people's desire to explore the like various alternative Twitters, alternative social media platforms, right? So, Farcaster sign in to that with an Ethereum account, Lens sign in to that with an Ethereum account, and I've used, you know, Farcaster and Lens and they're actually great. Fast forwarding to earlier in the year, I feel like, you know, a lot of crypto people have forgotten about this, but it's still super important to remember the invasion of Ukraine in February, right? Which is definitely an extremely tragic event overall, but the part of it that is, I think, quite happy is, obviously, that they succeeded in defending themselves far beyond most people's expectations, but I think you know, cryptocurrency payments actually worked for them when nothing else worked. And you know, they've actually starting from that very first tweet that the country's official Twitter account you know, made on the morning or the day after the invasion, you know, cryptocurrency actually has been a lifeline for the country, a lifeline for a lot of civilians and the people, right? And you know, that's just like one example, and then, you know, you have all these various small examples, so like you know, continuing adoption happening in places like Latin America, for example. You know, I came to Argentina last year, I came to Argentina this year, and the level of sophistication has improved by a lot, right? And you know, we've been one of the things I saw for example is when I you know, visited just recently, there was a group, I forgot their name, I think it was called either DeFi LatAm or something vaguely called like this, right? But this was a just a really lovely person from Venezuela and he was basically saying like, 'Hey, you know, the FTX situation is you know, helped me realize that DeFi actually is important and like I want to help Latin Americans you know, who need crypto actually get interact with crypto in ways that are decentralized and that involve self-custody.' And you know, this person actually knew a huge amount about you know, layer-2 protocols, a huge amount about you know, different forms of self-custody and all of these things. So, all of those things are you know, continuing to move forward. Cryptocurrency got used for is continuing to get used for philanthropy a lot. So, the last year was the year of you know, Crypto Relief India getting its money, but you know, this year Crypto Relief India continued spending some of its money. Also, Balvi, it's this group that like I helped spin up that used some of the money to put money into these more like it's more experimental, but potentially much more high-payoff options in terms of protecting people now and in the future against viruses. And that's funded amazing stuff like you know, UV lamps, open-source vaccine projects, and a whole bunch of things. And like cryptocurrency as a international payment instrument for philanthropy has just been huge there, right? So, I think it's important to just remember 2022 both not just for the massive failures, but also for the amazing technological and adoption backdrops that we've had and I think even the first inklings of cryptocurrency and the blockchain space's ability to actually have very significant positive impacts on the world. But you know, that's the year.

I'm trying to compare 2022 against the kind of early to mid bear market periods of the previous cycles, right? Actually, if you want to show people visuals, one great visual to show right now is the Bitcoin price from 2011 to now. Bitcoin just because Ethereum unfortunately didn't exist in 2011. But if you look at that, right? You know, you see kind of the great cycles, right? And you know, you have 2011 and then the really big one at the end of 2013 and then the even bigger one in 2017 and then the super big one in 2021, right? And see, the very first one at the left, it's like so low that we don't even notice it, right? Like if you just click the log button, wow. And so the 2015, right? So, if you go down that flat part after the first peak, that's when Ethereum launched, right? So, then 2018, that's the flat and the kind of cup and handle after the second bull market, that's when Uniswap was created and started existing for the first time. Now, let's look at the flat and the like slightly decreasing line after the third bubble. That's when the merge happened and we had multiple ZK EVMs and we're starting to see serious layer two adoption. So, the post peak periods are always periods in which there actually are some pretty significant technological progress that is happening. They are periods where I mean, often it's easier for people to get back to work because the numbers aren't giving them dopamine hits every 6 hours anymore and they're periods where a lot of real work gets done and even periods where the good gets separated from the bad, right? So, one of the other reasons that you wanted to make that analogy is that if you go back to 2014, right? The FTX of 2014 kind of Mt. Gox. I actually kind of don't want to even call Mt. Gox the FTX of 2014 because I just feel like the way Mark Karpelès did a bunch of horrible stuff, but I actually feel like the way that he has handled himself post blow up has actually been kind of honorable. Like, you know, he hasn't tried to give himself a Suge Knight style redemption arc or you know, give himself attention on Twitter. He just kind of, you know, went quiet for a while, just diligently worked on helping people get their money back and working on Gox and other things, right? Like, that's it's like our villains are getting lower quality now, right? It's you know, like Mark, I think you know, he has actually like improved in ways that like I just unfortunately don't expect people like Sam and Kyle to improve even a decade from now. But you know, very much hope I'm wrong though. I yeah, think I'm you know very I'm always happy when people positively outperform my expectations. Right, but the Mt. Gox blow up in 2014, it did feel like an existential crisis for the crypto space. It felt like a huge crisis for Bitcoin. It felt like a huge crisis for legitimacy. It was invitation for regulators to swarm around the space. And it you know did have a lot of bad consequences in all kinds of places and it made a huge number of people very unhappy. 2022, you know, a lot of very similar things are happening. Except you know, now we have I think a much more interconnected crypto space and we have a lot more sophistication. And so on the other hand, a lot more fragility and contention happening. Right? Though I think you know it's important to remember that like in 2014 there was fragility and contention too, right? Because Mt. Gox when it collapsed it was both the thing causing the crypto prices to crash and also the thing that people were used to as being the place where prices moved up and down. And so the market will have to like basically crash and change where its numbers were coming from at the same time. Right? And here you know, this year we had the double whammy of you know, obviously first Luna coming back down to earth and Terra going back down to somewhere much lower than earth. And you know, six months later obviously FTX blowing up and then a month after that I think BlockFi is like in bankruptcy or something like that now. Right? So it's definitely echoes of a similar situation. But at the same time like I don't want to be rosy about it because I think the other thing that's important to remember now that I think will make 2022 harder to recover from than 2014 is that I think a community having like this very high variance and like both high excitement and a high turnoff approach to existing is something that's a very good strategy when you're trying to increase adoption from 0.1% to 10%, but it's a terrible strategy when you're trying to increase adoption from 10% to 70%, right? I think this is a criticism I would have made of Bitcoin maximalism sometime ago too, right? That's if you're just a small community, then if you say you know, incredibly over the top things about how the US government is the primary source of all evil in the world and money printing is the reason why you know, we have some kind of military status dystopia instead of you know, Switzerland like happy land for everyone, then it's you know, you're going to turn off a lot of people who clearly kind of see through those attitudes and realize that there's a lot more complicated stuff going on in the world, but at the same time there is going to be some portion of the population that like really believes in the thing you believe or is really receptive to the thing you believe and they're attracted to the passion with which you say it and so they're going to you know, want to come along with you and you know, being in this kind of siege mentality where they are one of the few brave soldiers pushing forward the future even if you know, huge portions of the mainstream world and the Paul Krugmans and the Elizabeth Warrens and all those characters are you know, rapidly against them like there's a group of people to whom that like being in that position of the siege that really appeals to that, right? But that's how you get from 0.1% to 10% and crypto is no longer in the stage of getting from 0.1% to 10%. So I think there have been adoption charts and like estimates that people have attempted to make and in some countries ownership of cryptocurrency is like literally at the 10% of the population level. So now like the space is at the level of trying to get from 10% to 70% and that requires different strategies and strategies where, you know, this really crazy stuff that keeps losing people $5 keeps happening are like the exact opposite of what the space wants and needs to do, right? So I yeah, you know, I wanted to give the message of optimism but also give this kind of important message that there is a lot of work that needs to be done and you know, the status quo even if it's a status quo that's like kind of secretly exciting and fun for a lot of us like that's you know, not the sort of thing that we want crypto to continue to be for years from now if we actually want it to succeed.

It's a good question. Back in I think 2011 or 12 one of the earliest articles that I wrote for Bitcoin Weekly and it was called something like Bitcoin Esperanto Linux or the internet but basically comparing Bitcoin to like three different things that started off as being these very idealistic movements to replace the existing system with a totally different and much better system, right? And so Esperanto was this constructed language invented by Ludwik Zamenhof in the late 19th century. The goal basically being to create a language which is easier to learn because it has much more regular spelling and grammar, and the theory was that you know, everyone would learn Esperanto in addition to their national language, and everyone could speak Esperanto with each other, and that would be the path to world peace, right? And Esperanto ended up not really succeeding, right? It's this fairly niche interest community at this point. And you know, there are speakers, but it's like enthusiasts that are just you know, in it as a hobby or given much more than a pragmatic communication tool or an actual attempt to make world peace at this point, right? And which is like sad. I mean, I personally love like I never learned Esperanto super deeply, but you know, it's a really cool language. I think the world probably would have been better if it got much more adopted, but about it, by the way? Just to nerd out for just a second. Is it a combo of kind of like I mean, is it some sort of Latin derivative? Or is this really based from scratch? They built a new language from the ground up, so it's different. Esperanto is interesting. So like I mean, I have this like combination of very positive and critical views of it. I think the critical view is basically that it's a language that strove to be universal, but actually it ended up being like very European-specific. So like for example, the way that you make a plural in Esperanto is you add a J. And a J is pronounced 'yah', right? So like kind of like how in Eastern European languages or in German, right? So I mean, if you want to say some if you want to I think what like trying to think of like a good example for nouns in Esperanto. This is like I think 'homo' is a person, and 'homoj' is people. Let me just check that quickly. And then you have like the N, which is the accusative case, right? The accusative case is like the say like, you know how in English you have like if you're doing something, you say I am doing something. If someone's doing something to you, you say someone's doing something to me. So, I is the nominative and me is the accusative. So, a lot of European languages have that for nouns as well as pronouns. And Esperanto has that for nouns as well. So, it has a lot of these very European specific features, but at the same time the good is that it is extremely regular. So, it's even things like So, like English for example, right? Like you have words like who, what, where, when, why. And then you have like, well, that, because, therefore, at that time, right? And so, or if you want like the negative, then you have no one, never, for no reason, right? And like you have this kind of two by two table that's really complicated. In Esperanto, it's like a really incredibly clean system where like I think it's the like the first half of the word is like do you mean which, do you mean that, do you mean no one? And then the second half of the word is like referring to a person or referring to a time or referring to a place. So, it's got a lot of regularity in the grammar. It's got a lot of regularity in the spelling, right? So, English has a lot of this you know, really dumb spelling rules and you have to memorize spellings of a lot of words really thoroughly. Including the word thoroughly, which like makes totally no sense. So, I didn't But but I guess that's the point, right? Even if you design the most perfect language from a technical perspective, that's not how you actually get adoption for a language, right? So, there's like the theoretical perfection. Right. So, this is the analogy, right? It's you know, it has all these beautiful technical properties, but the adoption or basically went nowhere, right? And instead, like English had too much of a network effect and you know, especially post World War II where pretty much every major country except for the United States got turned into ruins. You know, that I think set English on a path to dominance and I don't really think anything else is in a position to challenge it now, right? So, that's Esperanto. Now, Linux is an interesting middle case, right? So, Linux is interesting because it's kind of succeeded in a kind of has not succeeded, right? So, Linux is this open source operating system. So, it's an alternative to things like Mac and Windows. So, I'm speaking right now through a computer that is running a Linux distribution. But, Linux has had this interesting mixture of success and failure. So, Linux on the desktop is mostly a failure. So, it is a product that is continuing to be developed and it is very usable and I use it and I think it's great, but it just doesn't quite appeal to the majority of people, right? But, on the other hand, Linux has become this really important back-end thing. So, Android for example, which a lot of phones use, runs on the Linux kernel. A huge portion of all the servers run on Linux. A huge portion of developers, like including people who write the Ethereum code base, but not all, but it's a very significant portion. Their computer They run Linux on their computers because Linux is just very developer-friendly, right? So, there's a lot of specific communities and specific applications in which Linux is very entrenched. And then there's this permanent dream of Linux as an open source operating system becoming this thing that really takes over everyone, but that just ends up never quite succeeding, right? And then the third is the internet and the internet is just obviously you know, completely taken over everything, right? And so, my question back in 2011 is is Bitcoin going to look more like Esperanto, more like Linux, or more like the internet? And I kind of was willing to accept all three possibilities as being likely, and I wasn't sure yet. I think today cryptocurrency is way past being Esperanto, right? But the question is like how Linux-y is it going to be, or how internet-y is it going to be? And I don't know. I mean, it's very possible that it's going to be in the middle, right? So, like it's very possible that what just one example, in developed countries, it's going to be like Linux on the desktop, but in the developing world, it's going to become like ubiquitous. It's very possible that in both worlds, it's going to be something that's organized or concentrated around a few particular industries that where, like say reversibility of credit card transactions and other things just like totally makes no sense, and cryptocurrency is the best thing that works. It might just be something that people have as a store of value without day-to-day, and when a big crisis comes, it just becomes suddenly really important for people, and people appreciate it, right? Or it's possible that you know, the next basically all of the infrastructure of the next wave of technology is going to be built around cryptocurrency, right? Hopefully cryptocurrency and Linux. That would be more of the Web 3, that last piece of slight the Web 3 meme. Yeah, so which one is it going to be? I don't know, and I mean, I'm a definite optimist on this. I think which one it's going to turn out to be depends crucially on how hard we try, and what we try to do.

I think absolutely. I think it's actually really important for like good people in the Ethereum space to recognize that they have agency and exercise it because I think if good people act passive then the things that take over just are going to be you know the drama queens of the world right and like I think we as people trying to build actually meaningful things you know have a responsibility to work hard to drown out the drama queens and that's a challenge and you know I think sometimes we can do worse sometimes we do better but you know we got to try.

So just to kind of start slowly moving into the blog post I wanted to talk about a bit. The we'll start with the first eight words of it right so the title. I intentionally said what in the Ethereum application ecosystem excites me instead of what in the crypto

Space excites me. This is an experiment I've been trying, basically using the word crypto less and using the word Ethereum more. And this is like a subtle thing. I mean, it's still an early stage experiment, so I'm not entirely sure what all of the consequences of emphasizing Ethereum in particular much more would be, but the theory here, first of all, it's not maximalist, right? So, it's not saying focus on Ethereum to the exclusion of everything else. It's more saying we are not going to implicitly ally with you just because you are a cryptocurrency by default, right? The problem with the crypto space is that the crypto space is an ungovernable commons that has no barrier to entry, right? So, if you remember the basics of Elinor Ostrom's theory of the commons and what commons create tragedies of the commons and what commons can be governed, one of the basic ingredients for a commons to be governed is gatekeeping, right? Like, you have to actually be able to say, this is us and this is not us and actually have some level of enforcement or filtering in the thing that is us. With the crypto space, the only qualification to be able to call yourself part of the crypto space and not have people complain is to just somehow use cryptography and to have some kind of chained data structure somewhere. Like, those are literally the qualifications, you don't even need decentralization, right? Like, I forget, has IOTA even gotten rid of their coordinator yet? I forget now, right?

Like, XRP, right? Like, they're still completely centralized and, but at the same time they are on CoinMarketCap and still, I think, haven't apologized for writing documents to the US government basically saying that they should be favored over Bitcoin and Ethereum because Bitcoin and Ethereum are China controlled.

Okay, so this is a good point. So here is my analogy. So suppose that you have an American politician who goes on CNN and he says, here is a package of policies. Here are some things that I want to deregulate. Here are some things that I want to subsidize and here are some things that I want to encourage and the combination of these ideas is needed to reinvigorate American prosperity into the 21st century. If you hear someone saying this from the perspective of a non-American, does that sound to me American maximalist? No, right.

Right. Like it does get a little bit complicated, right? Because there is definitely a real effect where there's some Americans that sort of act like the non-American world doesn't exist, but I think just this sentence that I just said is totally innocuous, right? And I think what the difference though is that people are frequently born into America and then that's just not actually their choice. Whereas when you come into the crypto space, you're kind of like a blank slate and you get to choose your chain or tribe that you align with. So I think that's the main biggest difference there.

I think if Bored Apes are the worst thing that happened in Ethereum in 2022, that's we're doing okay.

Yes. Yes, you do. That is true. That's why these boundaries are so difficult. Right, it's point, right? See, that this is why I'm kind of intentionally hedging this as a thought in progress, right? Because I think like ultimately there definitely is a trade-off between being permissionless in the good sense and being permissionless in the sense of letting literally anyone who wants to come in and borrow your social credibility, which is a type of permissionless system that we don't want. And there's probably some kind of balance to draw between those.

Yeah. Yeah, he I fought with him for sure.

Yeah, I think the big takeaway is that I think the crypto space is at its most honorable only in so far as it actually takes its own core principles seriously. So like I mean well what those core principles are should be pretty obvious, right? It's decentralization, openness, self-custody, being transparent with people, right? And those are all values that FTX did the exact opposite of pretty much since the beginning, right? And those are even values that Terra violated to some extent. I mean, I think Terra's a more complicated case because Terra was a hybrid of a mechanism that was open and transparent, but it was just bad with a mechanism that the rescue funds which was completely opaque. But FTX I think definitely the exact opposite of openness and trustlessness. A lot of the applications that grew a lot but then ended up completely failing, they probably tried too hard to kind of integrate with the mainstream and doing that by compromising toward the mainstream ways of doing things and eventually it just gets to the point where you realize there's just no point in having a blockchain left, right? So one of the examples of this might be the supply chain blockchain trial. I think it was ASX or one of those groups that did it and it just shut down recently. Right, there was just a lot of these enterprise blockchain projects that have quietly shut down over the last couple of years. And even the blockchain enterprise projects that were not shutting down, they generally went into the direction of hey, how about we're going to be more public chain now, right? And that's a trend that I feel like we've been talking about for a few years already. So, what kinds of things have succeeded, right? So, Uniswap has succeeded. Rai has succeeded. Dai, in the middle of a very complicated governance discussion, wish it success. The Ethereum base layer succeeded. ENS succeeded, right? So, smart contract wallets rising, account abstraction rising, privacy technology, I think it's obviously hit a speed bump with the various legal issues, but that's I think something that is going to continue and is going to pick up again next year and over the next couple of years. So, there's just a lot of different things that actually are blockchainy and open and decentralized and trusted that basically survived the whole situation completely unscathed, right? And it's the centralized stuff where everyone is wondering like, hey, am I ever going to get my money back, right? And there's actually different ways of having this perspective, right? So, the more crypto negative way of having this perspective would be to say that crypto was more honorable when it understood that it was a very niche gray market thing kind of like the Pirate Bay and it just tried to be that. But then the speculators came in and tried to turn it into something much bigger than what it was supposed to be and where all of the biggest harms are coming from, right? So, that's a view that you definitely hear from a certain tribe of more crypto-negative people, but in some ways that's basically saying the same thing, right? So, whether you believe the more crypto-positive slant on that or the more crypto-negative slant on that, the core idea that the parts of the crypto space that are honorable are the parts of the crypto space that actually try to stay true to its values, I think is something that there is a very broad agreement on. And that's the thing that I want to double down on.

No, you make a good point. So, I think there has been this contradiction in the Ethereum space since the beginning between a vibe that wants to try to be more than just money, in part because it wants to try to be more than just Bitcoin, versus the reality that's just obvious from the outside of the space, which is that cryptocurrency as currency just is far more proven than all of the more speculative stuff. I actually think though that the two perspectives are more compatible than it might seem. And the reason why they're more compatible than it might seem is because the application category that I spent the least time on in this post is DeFi, right? Like I think the vibe that I was reacting to when for example I made that presentation in Paris about a year and a half ago was one where there was not too much attention on money, a huge amount of attention on all kinds of incredibly complicated DeFi things, and then a tiny amount of attention on non-money and identity and social stuff, right? And my view on DeFi that we'll get into in this post is basically that I think simple DeFi good, complicated DeFi bad, right? Like by far the most important applications in the DeFi space in terms of actually being able to provide value to people are just incredibly simple stuff like for example stablecoins, right? Stablecoins are DeFi, they do involve significant financial engineering especially if they are something like Dai or Rai that tries to work without centralized external collateral. But they provide a service that's very simple and dumb to the point where you don't even realize that it's DeFi, but they are DeFi at the same time. Uniswap is DeFi, but it's just so simple and we've had it for like 5 years now, right? Prediction markets are DeFi but we've had them for 5 years. Like generally I think DeFi that we've had for 4 years is generally a better kind of DeFi than DeFi that emerged in the last 2 years is my general take, right?

Exactly. Well, it's a product of the time, but it's not about the time, right? It's a product of the time because the applications that emerged in the more old-school period were applications that really cared about providing these specific forms of utility that are very clear to people and in this very abstract way where they're clear even if you're not part of the ecosystem already, whereas the newer stuff it's like, oh, well, we're going to build a thing and you can liquidity farm it and it looks like you can maybe get 11.4% APR interest and, you know, hush-hush we're not going to talk too much about whether or not the 11.4% APR is sustainable. So, the newer stuff basically tends to be more often justified by short-term evidence of what it does and that's a very bad epistemology in the DeFi space because it's just so easy to get short-term good performance by sacrificing long-term performance, right? Whereas the categories of applications that existed for 4 years, if they did not have long-term value, people would have forgotten about them by now. But although, I would say that honestly, 4 years ago even the Ponzi's were more honorable. Like, you know, there were some pretty sophisticated games 4 years ago, right? Where there were these experiments where people would stick their money in and then the first person to take their money out would lose some percentage and then you'd have to hold your coins in the system for longer than everyone else, or you'd have these games where if you're the last person to touch the thing before no one touches it for 12 hours, you get a special reward. And it was just actually fun.

Exactly.

Exactly. Whereas the new stuff, there's a lot of obfuscation, there's often even layers of obfuscation going on, like there's obfuscation trying to against VCs, obfuscation against regulators, obfuscation against token holders, against early participants and late participants. And sometimes it's just kind of layered game where everyone understands that this thing refers to this thing, and you have these arguments about why it has to be this way, but then the problem with doing things in that way is that it basically creates no way to distinguish or no way for good projects to distinguish themselves from things where the thing that they're obfuscating is that their entire project is a pyramid scheme. And the good side of what emerged in 2021 basically turned out to be unsustainable and ended up just slowly offering lower and lower rates over time. And the bad side of what launched in 2021 just ended up blowing up completely, right? So, in both cases it was over-optimistic in terms of what it promised, but some of it degraded gracefully and some of it degraded very not gracefully. And so, what I want to go back to is just more doubling down on and refining the kind of fewer but really important ingredients that we have already known for quite a few years are actually really valuable and important to people.

Well, I personally have used cryptocurrency as money huge numbers of times over this year, right? And for me the use case basically is medium-scale investments and charity donations, right? Like just sending a couple hundred thousand dollars to some charity that's giving money to poor people or supporting healthcare in Africa or somewhere like that. Just quickly routing money to medical organizations that are based in all kinds of countries. Investing in startups. These are all cases where cryptocurrency is actually significantly more efficient than the existing banking system. And I don't think that it's temporary. Like, I think that there's structural reasons why cryptocurrency is better at surviving as a frictionless international thing than fiat traditional banking systems do, right? And so I think it's actually an open question whether or not CBDCs will even be able to compete against that in that same way, right? Like if China launches DCEP and does a really good job of it, then that could easily get a lot of adoption in China, but would people be willing to use it in Vietnam or Singapore? I don't know, right? Whereas cryptocurrency is a thing that actually has this very international reach already even today, right? So that's one thing and that's just to be clear it's kind of in a way trying to fulfill a very similar goal as the Esperanto language which is like you know, F every single nation-state currency because of the borders, but let's make a brand new currency and everyone can use that instead.

So there definitely is this structural aspect where because of its neutrality, cryptocurrency has an advantage that fiat currencies cannot have, right? And there are countries that have a reputation for neutrality, but the problem is that all the countries that have a reputation for neutrality don't have scale. Once a country has scale, it starts to have an advantage when if they do have neutrality, they get eaten up by the countries that don't have neutrality because the countries that don't have neutrality have the larger armies.

Certainly. Right. But, that's just me, right? So, like I interact with lots of people around the world, but I'm still ultimately a well-connected rich country person. But, then if you go out away from that and you go to all kinds of places in Latin America, Africa, Middle East, Southeast Asia, and those kinds of places, like there the financial system is often not even well-connected to rich country financial systems, right? Like, often enough cryptocurrency just is by far the easiest way to send money home to people's families. Cryptocurrency can be even the easiest way to make payments. It could be the easiest way to save money that is much more guaranteed to not drop by a factor of two every year for pretty much forever, right? Like, there are a lot of places where existing fiat currencies are very unstable and existing fiat financial systems are very unconnected and where the banking system doesn't even necessarily want to connect it, right? Like, basically, because there's just almost no incentive for them to. So, those are the kinds of places where I think cryptocurrency just has clearer use cases even today and where I expect it's more valuable to succeed in the long term and where if you go to the places and you go to the meetups and you talk to the people, the culture there just feels much more genuine and more real, right? Like, it's not talking about these issues theoretically. You have people saying like, hey, I'm from this country and in my country there actually was a hyperinflation, and because I was able to put money into Bitcoin and ETH, I was actually able to protect my savings. And these are actual experiences that you regularly hear from people there, right? And I think a culture that is animated by those kinds of goals is just much healthier than a country where the thing that is animated by is like, oh, look, I have a $36,000 monkey, and that's my pass to get into some kind of elite New York City nightclub. Right? It's like if I were to go to a New York City nightclub, I'd almost want to Let's see. What would I want out of a New York City nightclub? One is that I would want it to open at 4:00 a.m. instead of closing at 4:00 a.m. Because I think people who have the discipline to wake up in the morning are possibly more interesting. I would want to possibly exclude people who have a monkey that cost more than $30,000. Or I pretty much the exact opposite of what the New York City monkey scene is doing right now, right? So that's Yeah, you know, you're just not going to get a great culture when you have people that just don't have problems for themselves personally that cryptocurrency can solve other than getting rich off of other people's problems, right? And so the cryptocurrency communities that are best, I think, are the ones that are not in that position. And developing world is one example, and then I think another good example is developed world, but the more activist scene or certain industries that get deplatformed by banks and payment systems all the time and those kinds of things. So those are the places where I actually expect the most interesting work to happen over time. And those are the places that are in a lot of cases using blockchains and cryptocurrencies already, right? And I think the main challenge there is that today a lot of the time people are using cryptocurrency by interacting with Binance accounts, and it would be ideal if these people had more decentralized options available to them, too. And that's one of the reasons why I'm really excited about the social recovery wallet and smart contract wallet and account abstraction ecosystem. Why I'm excited about layer two technology to bring fees down, and excited about privacy technology and all these other things.

There's definitely less low-hanging fruit out there, right? And I think that's important to just recognize. And I think there's a huge amounts of opportunity, right? Like if you can make a wallet that a billion people use, that's a huge opportunity. If you can make a stablecoin that can actually survive, you know, anything up to and including a US dollar hyperinflation, and, you know, doge forbid that the US dollar hyperinflation actually ends up happening, then, you know, that's a huge opportunity as well. If you can, you know, create something that can actually, yeah, you know, be a lifeline for everyone going through that situation. If you can get sign in with Ethereum to work, and you can, like, unseat Facebook and, you know, Google and Twitter as the kind of login overlords of the internet, that itself is a huge opportunity, right? There are still huge things that are left unclaimed that still can be built, but they're harder to build, right? Like, you can't just build, you know, obfuscated casinos and get people to throw $13 million in and just have a fairly quick path to victory. So, that's the place where I think the space is in now, and I think the people that are going to be more successful are the people that are actually willing to put that kind of hard work in.

Sure. So, identity is a complicated term that refers to a whole bunch of different ideas, right? So, like, the concept of authentication, just proving that the identity that you are using to sign a particular message, to post this particular message, to send a transaction is the same identity that you registered at some point before, right? Even if it's totally pseudonymous, like, even if it's a PGP public key. That is part of identity. Attestations, I attest that, you know, David Hoffman and Ryan Sean Adams are both participants in this thing called Bankless. That's a part of identity. The government of Canada attests that I'm a Vitalik Buterin and I'm a citizen. That's part of identity. Domain names or .eth names like vitalik.eth also parts of identity. Proof of personhood, proving that I'm a unique human and this is the only account that belongs to me in the system. That's part of identity, right? Like, identity is this very nebulous bubble term that refers to all of these things and sometimes when people say they need an identity solution, they might be referring to any one of those or any combination of them. And those problems are very different problems and they're problems that have very different properties. Like they have, for example, very different properties in terms of the level of centralization they might require, in terms of the level, the extent to which the problems are social, the extent to which you can make a solution that works for a small number of people that doesn't grow beyond that small number of people. And these are all actual use cases and they're all specific needs that people have. But the problem is that for the last decade I've also noticed like this very abstract blockchain identity discourse where there were people that have been intentionally trying to create identity platforms. Like there were people that tried to create identity blockchains. And I'm by default and, you know, have been and still am very not bullish on a lot of those, right? Because basically they just have the mindset of starting from the point of view of identity as an abstraction as opposed to starting from the point of view of a concrete set of use cases that people care about regardless of whether or not they can later narrativize those use cases into being part of some grander space that they can call identity, right? It's like meme first as opposed to problem first, and the problem first is the approach that I think is more viable there, and I think it's more viable everywhere. And I think Ethereum is the place where identity solutions in the sense of solutions to all of these specific problems that I identify are happening and are pretty rapidly growing.

Yep. I mean, it almost has to be like a byproduct of the thing that you're building. Right? Like in a certain way, why is there sign on with Google or sign on with Facebook? It's not because they started with the identity solution, but it's because Google made Gmail just so damn valuable and its app ecosystem. And so, everyone has a Gmail account, and now you can use that to sign in.

I think you had it exactly right in that whatever the thing is that gets the network effect has to get the network effect for some other reason first, right? One example that I think is good to zero in on is Ethereum wallets versus PGP keys, right? PGP keys have for a long time been the number one Cypherpunk meme, right? Like we have a Cypherpunk world when everyone has a PGP key and when people could use these PGP keys to sign and encrypt messages to each other.

Yeah. Mhm. People tried really hard to have key signing parties and attest to each other and, you know, have PGP encrypted email and even have all kinds of apps to make it easier and, you know, all of these different overlay layers, but just none of them have really worked well and what has worked well? Well, guess what? We have Ethereum accounts now. And what is an Ethereum account? Well, it's a private and public key pair. And so now guess what? You can sign into stuff with an Ethereum key, you can encrypt stuff to people's Ethereum keys with a tiny bit of extra work, right? And so you just get all of this immediate benefit that's only possible because you already have a user base of millions of people that have Ethereum wallets, which they got originally for like basically financial reasons, right? Because they wanted to hold cryptocurrency or do DeFi stuff and occasionally NFT stuff with it.

I think standards will emerge over time, right? Like the POAP protocol exists and lots of people use it. And POAP I think has so far been more successful within the Ethereum ecosystem than anything that calls itself an attestation protocol, right? Like they've, you know, actually gone out there. They have the network effects. Lots of people have POAPs. I have dozens of POAPs. And, you know, the thing works and the thing is continuing to grow, right? So that's just like one example of something that I think is succeeding. And there I think there's definitely room for a couple of other things to succeed as well. And then at some point they're going to grow to the point where they have to talk to each other. And at some point they're probably going to agree on like aligning cryptographic standards or something like that. And, you know, hopefully we'll get to something reasonably sane.

Mhm. I mean, it solves problems that people actually have, right? Like people obviously want to have an identity in the sense of like just wanting to have an identifier like a username that other people can use to talk to each other. Crypto in addition to being a useful set of products is an ecosystem and people in that community want to talk to each other. So, it serves that need, too. People, I think, want to be able to do stuff on the internet without that stuff being dependent on, you know, Google or Facebook or Twitter being able to do whatever they want with their accounts or even just like seeing all of the actions that they're taking. So, there's just like clear value that I think speaks to things that people in the crypto space want to do and even to dreams that people outside of the crypto space have had for a long time, right? Like this is, you know, making the internet more decentralized in a way that I think a lot of people have wanted to for like decades at this point. And so, I think it's in a great place to actually get that kind of adoption.

I think absolutely.

Yeah, so ironically enough, I think DAOs are well set to replace a lot of things other than corporations, right? Like corporations are actually one of the forms that I kind of specified that DAOs are less likely to be able to replace. And the reason for that is that I think corporations benefit from the ability to pivot. And the ability to pivot is like almost the inherent opposite of a certain type of decentralization that people really want. But, also corporations are not like they are big enough that they can afford to set up like more regular infrastructure, like legal infrastructure and security infrastructure and so forth. And so, they don't really benefit well from the other architecture, which is like, 'Hey, let's just not bother with that stuff and have a multi-sig of seven people,' right? So, my view is basically that there's two architectures that make sense. One of those architectures is like, 'Let's quickly spin up a multi-sig of seven people.' And the other architecture is let's think really hard and create something that's like very credible neutral, very able to resist all kinds of takeover attacks, and use it to run really important stuff that we want to last for many decades, right? Whether that's ENS or whether that's a stablecoin or I don't know, something like proof of humanity or something like Kleros. Like, let's figure out how to make that extremely robust, right? So, that's something where I think a DAO makes a lot of sense. And then the multi-sig of seven people use cases are use cases where I think something that you could call a DAO makes a lot of sense, right? But it's like a DAO where you're not really emphasizing the smart contract logic, you're emphasizing more the decentralization of just like very open and spontaneous collaboration patterns that can be very agile with between very small groups of people, and the smart contract side of things is actually pretty minimal, right? So, those are the two architectures that I'm more bullish on. Architectures that try to do something else I'm less bullish on, right? So, like things like, you know, the original DAO trying to be a DAO that is a VC fund, like yeah, the more time goes on, the more I think like yeah, actually that doesn't really make a huge amount of sense, right? In those kinds of cases, like you're getting the disadvantages of decentralization, which are that you move slower and that you open up things that other people in a competitive environment can use against you, but you're not really getting too many benefits from decentralization either. So, like if you want to do that kind of VC fund, you just open up a VC fund, right? Whereas, you know, a DAO for like MakerDAO or a DAO for proof of humanity or a DAO for ENS, like that's something where that kind of value makes sense. And then a DAO in the sense of, you know, a group of five or seven people that just wants to like quickly collaborate without bothering with a legal entity, like that's also something that makes a lot of sense.

I think we need innovation. So, this gets into one of the other topics I've been really big on over the last year, right? Which is non-financialized governance, like governance that can resist attacks from like say 51% of the token holders or the token holders getting bribed or those kinds of situations. And I even argue that it's the financial use cases where de-financialized governance is the most important. Right? Like if you look at a stablecoin for example, like MakerDAO, it has I think what were the stats that I got in the post? $7.8 billion of collateral, but the market cap of the Maker token itself is like somewhere around $500 million, right? And so if MakerDAO really was governed by Maker holders in an unrestricted way, then you could just go and buy up half the Maker tokens and then use that to manipulate the oracles and you could steal a huge portion of all the collateral and that would just be a really big and profitable multi-billion dollar attack, right? Now, the reason why that hasn't happened to MakerDAO specifically is because Maker holders are fairly concentrated and there's like maybe a dozen people that have more than half the total supply and it just so happens that those dozen people are kind of fairly aligned on the vision and they're, you know, either honest or at least they have enough other interests that it would be really hard if they did something like that, right? But in the long term, that's not the sort of thing that you really want to rely on. Right? And so I think it's obvious that if you want a stablecoin that scales, the collateral has to exceed the market cap of the profit-taking token and probably by even more than 17x. But if you want to do that, you have to have some kind of governance that's not financialized or some kind of governance where there's some kind of intentional friction or speed bump that prevents MKR holders or the token holders of the system from being able to quickly implement whatever goal they want and take over the system.

Mhm. Hybrid applications are applications that are not entirely on chain, but that benefit from being connected to a chain, right? So, basically think of it as centralized services that use the chain and commitments published to a chain as a way to constrain their behavior and keep the system honest. So, the nice thing about hybrid applications is that they, I mean, obviously scalability challenges basically don't exist with them, right? Like as long as you can make, you know, ZK snarks that are powerful enough, you can make some of these applications already. So, scalability challenges don't exist. Privacy challenges are a lot smaller, especially if you can trust the provider. And sometimes even if you can't trust the provider even. And the deployment challenges are much simpler because in a lot of these cases it's not even something that requires changing the workflow of the user. It's like purely an overlay that runs on the side and only people who want to interact with the overlay have to, right? So probably the simplest example of this actually is making centralized exchanges safer with proof of solvency protocols, right? Like if you have an exchange that actually, you know, publishes commitments to say all of their user liabilities, and then they have assets on chain and by having assets on chain they're proving that they actually have the assets that match the user liabilities. Like that is an example of an application that does use the chain and even uses cryptocurrency, but it is also a centralized application and that application could keep the workflow of being a centralized application but still get a lot of benefits from being hooked into and kind of being shackled by the decentralized system. Games are another example where like you can have game servers that post the state to chain using zero-knowledge proofs and that basically binds them to actually follow the rules that they committed to. The Dark Forest game right is probably one example of this. Voting I mentioned as an example and there's many different kinds of voting even going all the way down to something as simple as like Twitter polls for example, right? Like you could imagine a blockchain based Twitter like Farcaster say as an Ethereum based Twitter like Farcaster. Make a poll where you use one of these fancy voting mechanisms to vote in the poll and the voting is totally private, the voting is even coercion resistant and that's also hooked into POAPs, and so you can limit the poll to a certain group of people, right? But then Farcaster is like I guess not quite a hybrid application because Farcaster is aiming to be a decentralized system, but, you know, you could imagine something, a kind of centralized, also plug those kinds of components in, right? And so you get kind of the efficiency of centralization and the robustness benefits of decentralization at the same time. Right? So I think there's a really huge number of applications in this category, like on some level almost anything can be improved by requiring it to submit roots to chain and requiring it to be open about when it changes its rules, right? And that's just something that you can just like go and add on. And, you know, it might not have benefits at first, but it might have benefits that appear years down the line. And just the cost of doing it is in the long run so low that I think there's a bunch of applications where it makes sense.

Yep, absolutely. That's their goal. So, the broader question I think really, the reason how that will actually end up is just like at some point the companies that do this just have a competitive advantage versus the ones that don't. That's like perhaps like the capitalism market forces argument for why this will happen. But, I want to kind of zoom back in into the near term and also go into one of the last sections in your article, Vitalik, which is how do we get there? And then a quote from your article I want to read is that the Luna market cap got over to $30 billion while stablecoins that were striving for robustness and simplicity are often ignored for years. Non-financial applications often have no hope of earning 30 billion because they do not have a token at all. But, it is these applications that will be the most valuable for the ecosystem in the long term and that will bring the most lasting value to both their users and those who build and support them. This paints this picture that all these flashy scams like the Lunas, the Wonderlands, FTX will always get more attention and more adoption than like these boring hardened basic primitives that crypto so desperately needs. And so, this kind of lends itself, Vitalik, to like one of my existential crises I've been having recently is that crypto might actually not be good in the short term because it takes longer for these hardened real protocols to get built out. Meanwhile, we can generate like 10,000 API Ponzi's along the way for three bull markets in a row. Do you think that this illustration of crypto is true? And how do you suggest that we accelerate the good things that we can take and show our moms?

This is, you know, where we get back to one of my points a bit earlier, right? Like we have to recognize our own agency, right? Like we all just need to work much harder at, you know, both doing all that we can to help those applications and doing less that we can to help applications that even if they look shiny in the moment are not actually all that meaningful long-term. You know, just being willing to get excited about stuff other than making huge amounts of money. As, you know, organizations in the space can do much more to explicitly support some of those projects, right? Like even just, you know, giving grants, like a few million dollars worth of grants to people who are honestly trying to make wallets that properly solve the self-custody problem, right? Like these are, you know, try to get to the point where like how hard you have to work to get funding as a wallet developer is like at least comes close to approaching how easy it was if you were just running a DeFi project. It's just also just like talking about some of the problems that these projects are solving and why it's so important to solve them. And I think the best that we can do for now is a combination of all of those things. Another important thing that I think is important for the space to do is like continue the conversation with regulators and not just in the United States, but, you know, regulators around the world, right? I think it's important to get out the message that like what we as the Ethereum space want is not even necessarily a regulatory environment that's friendly to everyone, but a regulatory environment that satisfies the requirements of being maximum friendly to like say people building account abstraction wallets or working on zero knowledge proof protocols, but without being friendly to Do Kwon, right? And like what does that even look like? It's another one of the conversations that I think is worth having and trying to figure out, right? Because I think at this point the political appetite to make an environment that's friendly to Do Kwon is like definitely close to zero at this point, right? And so I think it's important to kind of take the lead in the conversation of like how to be friendly to, you know, people making account abstraction wallets specifically without being friendly to Do Kwon, and that's a more difficult one. And that's definitely something that I'll keep thinking about, too.

I feel like the answer is still some of everything, right? Like I think now that might change over time, you know, that it might be other things too, right? But for now, you know, it's definitely some combination of like increasingly trying to help projects that I like that are building good applications succeed and, you know, helping to explore and understand the application space better. You know, still a lot of important Ethereum protocol stuff better and, you know, participating in the discussion on like scaling, trying to kind of push the EVM in a good trajectory so it gets, you know, functionality that people want without getting the complexity that people don't want. Trying to I guess continue to interact and connect with the various Ethereum communities around the world. I've made it a goal next year to spend some time visiting places that I have historically not spent much time visiting. I mean, that was my goal for this year too, right? And I did end up spending, I mean, a month in Latin America, but, you know, next year other places too. So, it's like, you know, right now definitely some of everything and some of just like letting other good people, you know, continue doing great work and I guess helping the Ethereum ecosystem move over to being this, you know, like very stable and self-supporting thing that just keeps going forward on itself.

It's a good question. Okay, so I have thought about this, right? And I think like the one place where we could do that is in the context of multi-dimensional EIP-1559, right? This is the proposal where instead of having just one gas limit, we have one limit for computation and then one for like data and one for, I mean, you know, maybe storage operations. Like one of the dimensions could just be called mana and, you know, I don't know. I think that would be cool and fun. I like Ethereum being fun. But if it's going to be anywhere, that would be the place where it is, but we'll see.

Yeah, yeah. Mana is like the primary like limited resource for like anyone using magic.

Indeed. Like, you know, you have Ethereum, you have soulbound tokens. We're getting closer.

Yeah, that's true. That's true. You got to confess.

Yeah, still Blizzard. Vitalik, thanks a lot. We really appreciate it.

Yeah, no. Thank you guys, too. It's been great.