Vitalik Buterin: Ethereum, Cryptocurrency, and the Future of Money
Guests: Vitalik Buterin
Full transcript · Read the full conversation in order, with its original context.
Contents11 chapters
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The following is a conversation with Vitalik Buterin,
co-creator of and author of the white paper
that launched Ethereum and Ether,
which is a cryptocurrency that is currently
the second largest digital currency after Bitcoin.
Ethereum has a lot of interesting technical ideas
that are defining the future of blockchain technology.
And Vitalik is one of the most brilliant people
innovating in the space today.
Unlike Satoshi Nakamoto, the unknown person or group
that created Bitcoin, Vitalik is very well known
and at a young age is thrust into the limelight
as one of the main faces of the technology
that may redefine the nature of money
and all forms of digital transactions in the 21st century.
This is the Artificial Intelligence Podcast.
If you enjoy it, subscribe on YouTube,
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at Lex Friedman, spelled F-R-I-D-M-A-N.
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And now here's my conversation
with Vitalik Buterin.
So before we talk about the fundamental ideas
behind Ethereum and cryptocurrency,
perhaps it'd be nice to talk about
the origin story of Bitcoin
and the mystery of Satoshi Nakamoto.
You gave a talk that started with sort of asking the question
what did Satoshi Nakamoto actually invent?
Maybe you could say who is Satoshi Nakamoto
and what did he invent?
- Sure, so Satoshi Nakamoto is the name
by which we know the person
who originally came up with Bitcoin.
So the reason why I say the name by which we know
is that this is an anonymous fellow
who has shown himself to us only over the internet
just by first publishing the white paper for Bitcoin,
then releasing the original source code for Bitcoin,
and then talking to the very early Bitcoin community
on Bitcoin forums and interacting with them
and helping the project along for a couple of years.
And then at some point in late 2010 to early 2011,
he disappeared.
So Bitcoin is a fairly unique project
in how it has this kind of mythical,
a kind of quasi-godlike founder
who just kind of popped in and did the thing
and then disappeared and we've somehow
just never heard from him again.
- So in 2008, so the white paper was the first,
do you know if the white paper was the first time
the name would actually appear, Satoshi Nakamoto?
- I believe so.
- So how is it possible that the creator
of such a impactful project remains anonymous?
- That's a tough question.
And there's no similarity to it in history of technology
as far as I'm aware.
- Yeah.
So one possibility is that it's Hal Finney
because Hal Finney was kind of also active
in the Bitcoin community as Hal Finney
in those two beginning years.
And Hal--
- Who is Hal Finney maybe?
- He is one of the people in the early Cypherpunk community.
He was--
- So he's a computer scientist, just one of the--
- Yeah, computer scientists, cryptographers,
people interested in technology, internet freedom,
like those kinds of topics.
- Is it correct that I read that he seemed
to have been involved in either the earliest
or the first transaction of Bitcoin?
- Yes.
The first transaction of Bitcoin
was between Satoshi and Hal Finney.
- Do you think he knew who Satoshi was?
If he was--
- If he wasn't Satoshi, probably no.
- How is it possible to work so closely with people
and nevertheless not know anything
about their fundamental identity?
Is this like a natural sort of characteristic
of the internet?
Like if we were to think about it,
'cause you and I just met now,
there's a depth of knowledge that we now have
about each other that's like physical.
Like my vision system is able to recognize you.
I can also verify your identity of uniqueness.
- Yep.
- Like it's very hard to fake you being you.
- Yes.
- So the internet has a fundamentally different quality
to it, which is just fascinating.
Can you maybe talk to that?
- Yeah, no, this is definitely interesting
as I definitely just know a lot of people
just by their internet handles.
And to me, when I think of them,
like I see their internet handles
and one of them has a profile picture
of this kind of face that's kind of not quite human
with a bunch of kind of psychedelic colors in it.
And when I visualize him, like I just visualize that.
- That, not an actual face.
- Yeah.
- You are the creator of the second,
well, at least currently,
the second most popular cryptocurrency, Ethereum.
So on this topic, if we just stick on Satoshi Nakamoto
for a little bit longer,
you may be the most qualified person to speak
to the psychology of this anonymity
that we're talking about.
Like your identity is known, like I've just verified it.
But from your perspective,
what are the benefits in creating a cryptocurrency
and then remaining anonymous?
Like if it can psychoanalyze Satoshi Nakamoto,
is there something interesting there?
Or is it just a peculiar quirk of him?
- It definitely helps create this kind of image
of this kind of neutral thing that doesn't belong to anyone.
That you've created a project
and because you're anonymous
and because you also have disappeared,
or as unfortunately happened to Halfini, if that is him,
§02Transcript · 09:39–18:57
he ended up, I think, dying of Lou Gehrig's disease
and he's in the cryogenic freezer now.
But like if you pop in and you created and you're gone
and all that's remaining of that whole process
is the thing itself,
then no one can go and try to interpret
any of your other behavior and try to understand like,
oh, this person wrote this thing in some essay at age 16
where he expressed particular opinions about democracy.
And so because of that, this project is a statement
that's trying to do this specific thing.
Instead it creates this environment
where the thing is what you make of it.
And...
- It doesn't have the, yeah, right.
The burden of your other ideas,
political thought and so on.
So now that we're sitting with you,
do you feel the burden of being kind of the face of Ethereum?
I mean, there's a very large community of developers,
but nevertheless.
- Yeah.
- Is there like a burden associated with that?
- There definitely is.
This is definitely a big reason why I've been trying
to kind of push for the Ethereum ecosystem
to become more decentralized in many ways.
Just encouraging a lot of kind of core Ethereum work
to happen outside of the Ethereum foundation
and of expanding the number of people
that are making different kinds of decisions,
having multiple software pollutations instead of one
and all of these things.
Like there's a lot of things that I've tried to do too
and remove myself as a single point of failure
because that is something
that a lot of people criticize me for.
- So if you look at like
the most fundamentally successful open source projects,
it seems that it's like a sad reality when I think about it
is it seems to be that one person is a crucial contributor.
Often you feel like a lioness for Linux, for the kernel.
- Yeah, that is possible.
I'm definitely not planning to disappear.
- That's an interesting tension
that projects like this kind of desire a single entity
and yet they're fundamentally distributed.
I don't know if there's something interesting to say
about that kind of structure
and thinking about the future of cryptocurrency.
Does there need to be a leader?
- There's different kinds of leaders.
There's dictators who control all the money.
There's people who control organizations.
There's kind of high priests
that just have themselves and their Twitter followers.
- What kind of leader are you, would you say?
- Yeah, in these days,
I actually a bit more in the high priest direction
than before.
I definitely actually don't do all that much
of kind of going around
and ordering Ethereum Foundation people to do things
because I think those things are important.
If there's something that I do think is important,
I do just usually kind of say it publicly
or just kind of say it to people.
Quite often projects just gonna start doing it.
- So let's ask the high philosophical question about money.
What at the highest level is money?
What is money?
- It's a kind of game.
And it's a game where we have points.
And if you have points,
there's this one move where you can reduce your points
by a number and increase someone else's points
by the same number.
And these--
- So it's a fair game, hopefully.
- Well, it's one kind of fair game.
Like for example, you can have other kinds of fair games.
Like you're gonna have a game
where if I give someone a point
and you give someone a point,
then instead of that person getting two points,
that person gets four points.
And that's also fair.
But money is easy to kind of set up
and it serves a lot of useful functions.
And so it kind of just survives in society
as a meme for thousands of years.
- It's useful for the storage of wealth.
It's useful for the exchange of value.
- And it's also useful for denominating future payments,
a unit of account.
- A unit of account.
So what, if you look at the history of money
in human civilization,
just if you're a student of history,
how has its role or just the mechanisms of money
changed over time in your view?
Even if we just look at the 20th century or before
and then leading up to cryptocurrencies,
that's something you think about?
- Yeah, and I think the big thing in the 20th century
is kind of, we saw a lot more intermediation, I guess.
The first part is kind of the move from adding
more of different kinds of banking.
And then we saw the move from dollars being backed by gold
to dollars being backed by gold
that's only redeemable by certain people
to dollars not being backed by anything
to this system where you have a bunch
of free floating currencies
and then people getting bank accounts
and then those things becoming electronic,
people getting accounts with payment processors
that have bank accounts.
- So what do you make of that?
That's such a fascinating philosophical idea
that money might not be backed by anything.
Is that fascinating to you,
that money can exist without being backed
by something physical?
- It definitely is.
- Like what do you make of that?
Like how is that possible?
Is that stable?
If we look at the future of human civilization,
is it possible to have money at the large scale
at such a hugely productive and rich societies
be able to operate successfully
without money being backed by anything physical?
- I feel like the interesting thing
about the 21st century especially
is that a lot of the important valuable things
are not backed by anything.
Like if you look at tech companies for example,
something like Twitter,
you could theoretically imagine
that if all of the employees wanted to,
they could kind of come together,
they would quit and start working on Twitter 2.0
and then the value of,
and just kind of build the exact same products
or possibly build a better product
and then just kind of continue on from there
and the original Twitter
would just not have people left anymore.
There is theoretically kind of code and IP
that's owned by the company,
but in reality, good programmers
could probably rewrite all that stuff in three months.
So the reason why the thing has value
is just kind of network effects
and coordination problems.
Like these employees in reality
aren't going to switch all at once
and also the users aren't all going to switch at once
because it's just difficult for them to switch at once.
And so there's these kind of meta stable
and of equilibria in interactions
between thousands of millions of people
that are just actually quite sticky,
even though if you try to kind of assume
that everyone's a perfectly rational
and kind of perfectly slippery spherical cow,
they don't seem to exist at all.
- That stickiness, do you have a sense,
a grasp of the sort of the fundamental dynamic,
like the physics of that stickiness?
It seems to work,
but and I think some of the cryptocurrency ideas
kind of rely on it working.
- Yeah, it's the sort of thing
that's definitely been economically modeled a lot.
One of the kind of analogy of something as similar
that you often see in textbooks
as like what is a government?
Like if for example, like 80% of people in a country
just like tomorrow suddenly had the idea
that like the laws that are currently,
the laws in the government
that currently is the government
are just people in some other thing is the government
and they just kind of start acting like it,
then that would kind of become the new reality.
And then the question is, well,
what happens if kind of between zero
and 80 people or an 80% of people start believing that?
And like, what is the thing you see is that
if there is one of these kind of switches happening
is kind of revolution,
then if you're the first person to join,
then like you probably don't have the incentive to do that.
But then if you're the 55th percentile person to join,
then suddenly becomes quite safe too.
And so it's definitely is the sort of thing that you can
kind of try to analyze and understand mathematically.
But one of the kind of results is that the sort of
§03Transcript · 19:02–28:37
like when the switch happens
definitely can be chaotic sometimes.
- Yeah, but still like to me,
the idea that the network affects the fact that
human beings at a scale of like millions, billions
can share even the idea of currency, like all agree.
That's just, I know economics can model it.
I'm a skeptic on the economic.
And it's like, so my favorite sort of field
maybe recreationally psychology
is trying to understand human behavior.
And I think sometimes people just kind of pretend
that they can have a grasp on human behavior,
even though it's such a messy space
that all the models that psychology or economics,
those different perspectives on human behavior
can have are difficult.
It's difficult to know how much that's wishful thinking
and how much it is actually getting to the core
of understanding human behavior.
But on that idea,
what do you think is the role of money in human motivation?
So do you think money from an economics perspective,
from a psychology perspective is core to like human desires?
Money is definitely very far from the only motivator.
It is a big motivator.
And that's one of the closest things you have
to a universal motivator.
Because ultimately in like almost any person in the world,
if you ask them to do something,
like there'll be more inclined to do it
if you also offer them money, right?
And that's like, there's definitely many cases
where people will do things other than things
and maximize how much money they have.
And that happens all the time.
But like a lot of those other things
are kind of much more specific to
and of who that person is and of where their situation is,
the relationship between the motive and the action
and these other things.
- What do you think is the interplay of the other motivator
from like Nietzsche perspective is power?
Do you think money equals power?
Do you think those are conflicting ideas?
Do you think, I mean, that's one of the ideas
that decentralized currency,
decentralized applications are looking at
is who holds the power?
- Yeah, money is definitely a kind of power.
And there's definitely people who want money
because it gives them power.
And then even if money doesn't seem to
kind of explicitly be about money,
a lot of things that people spend money on
are ultimately about a social status of some kind.
So I definitely view those two things as kind of interplaying.
And then there's also money as just a way of like
measuring how successful you are, like as a scoreboard, right?
So this kind of gets back to the game.
I mean, like if you have $4 billion,
then the main benefit you get from going up,
or one of the big benefits you get
from going up to $6 billion is that now,
instead of being below the guy who has five,
you're above the guy who has five.
- So you think money could be kind of,
in the game of life, it's also a measure of self-worth.
It's like how we-
- It's definitely how a lot of people perceive it.
- Define ourselves in a hierarchy of society.
- Yeah, not saying it's sort of a healthy thing
that people define their self-worth as money,
'cause it's definitely far from a perfect indicator
of how much value you provide to society
or anything like this.
But I definitely think that as a matter
of kind of current practice,
a bunch of people do feel that way.
- So what does utopia,
from an economic perspective, look like to you?
What does a perfect world look like?
- I guess the economists say utopia would be one where
kind of everything is incentive aligned
in the sense that there aren't enough conflicts
between what satisfies your goals
and kind of what is good for everyone
in the world as a whole.
- What do you think that would look like?
Does that mean there's still poor people and rich people?
There's still income inequality?
Do you think sort of Marxist ideas are strong?
Do you think sort of ideas of objectivism,
like where the market rules is strong?
Is there different economic philosophies
that just seem to be reflective of what utopia would be?
- So I definitely think that existing economic philosophies
do end up kind of systematically deviating
from the utopia in a lot of ways.
Like one of the big things I talk about, for example,
is public goods, right?
And public goods are especially important on the internet.
Because like the idea is with kind of money as this game
where I lose a few coins and you gain the same number
of coins is that this usually happens in a trade
where I lose some money, you gain some money,
you lose a sandwich and I gain a sandwich.
And this kind of model works really well
when the thing that we're using money to incentivize
this set of private goods, right?
Things that you provide to one person
where the benefit comes to one person.
But on the internet especially,
but also many, many contexts kind of off the internet,
there's actions that kind of individuals or groups can take
where instead of the benefit going to one person,
the benefit just goes to many people at the same time
and you can't control who the benefit goes to, right?
So for example, this podcast, we publish it
and when it's published,
you don't have any fine grains control over like,
oh, these 38,000 people can watch it
and then like these other 29,000 people can't.
It's like once the number goes high enough,
then people will just copy it.
And then when I write articles on a blog,
then they're just like free for everyone
and that stuff's even harder to prevent anyone from copying.
So aside from that, things like scientific research,
for example, and even taking more pedestrian examples
like climate change mitigation would be a big one.
So there's a lot of things in the world
where you have these kind of individual actions
with enough concentrated costs and distributed benefits
and money as a point system
does not do a good job of encouraging these things.
And one of the kind of other things
even tangentially connected to crypto,
but kind of theoretically outside of it that I work on
is this sort of mechanism called quadratic funding.
And the way to think about it is,
and if imagine a point system where if one person
gives coins to one other person,
then it works the same way as money.
But if multiple people give coins to one person
and they do so anonymously,
so it's kind of not in consideration
for a specific service to that person themselves,
then the number of coins received by that person
is greater than just the sum of the number of coins
that have given by those different people.
So the actual formula is you take the square root
of the amount that each person gave,
then you add all the square roots
and then you had a square of the sum.
- Yeah, and then you give that.
And the idea here would basically be that if,
let's say for example,
you just started going off and kind of planting
a lot of trees and there's a bunch of people
that are really happy that you're planting trees
so they go and all kind of throw a coin your way,
then there is like basically the fact
that kind of you get more than the sum,
you get this kind of square of some of these,
of square roots of these tiny amounts
is that this actually kind of compensates
for the tragedy of the commons, right?
There's even this kind of mathematical proof
that it sort of optimally compensates for it.
- What is the tragedy of the common?
- This is just this idea that if there is this situation
where there's some public good
that lots of people benefit from,
then no individual person wants to contribute to it
'cause if they contribute,
they only get a small part of the benefit
from their contribution,
but they pay the full cost of their contribution.
- In which context is this,
sorry, what is the term, quadratic what?
- Quadratic funding.
- Quadratic funding.
Like what's, in which context is this mechanism useful?
So obviously you said to combat
the tragedy of the commons,
but in which context do you see it as useful
actually practically speaking?
- Yeah, theoretically public goods in general, right?
So like--
- Like services, like what are we talking about?
What's a public good?
- Yeah, so within the Ethereum ecosystem, for example,
we've actually tried using this mechanism.
I wrote a couple of articles about this
and on vitalik.ca where I go through
some of the most recent rounds
and it's been really interesting.
Some of the top ones that people supported,
there were things like just online user interfaces
§04Transcript · 28:42–38:10
that make it easier for people to interact with Ethereum.
There was documentation, there were podcasts,
there were software and of clients,
like kind of implementations of the Ethereum protocol
of privacy tools, just like lots of things
that are useful to lots of people.
- When a lot of people are contributing,
like funding a particular entity,
that's really interesting.
Is there something special about the quadratic,
the summing of the square roots and the taken square?
- So another way to think about it is like,
imagine if N people each give a dollar,
then the person gets N squared, right?
And so each individual person's contribution
gets multiplied by N, right?
'Cause you have N people.
And so that kind of perfectly compensates
for the kind of N to one tragedy of the commons.
- I just wonder if the squared part is somehow fundamental.
- No, it is.
And I'd recommend you go to, on Vitalik.ca,
I have this article called "Quadratic Payments, a Primer"
and highly recommend it.
It's kind of, at least my attempt so far,
kind of explaining the intuition behind this.
- Intuition.
So if we could, can we go to the very basic?
What is the blockchain?
Or perhaps we might even start
at the Byzantine Generals problem
and Byzantine fault tolerance in general
that Bitcoin was taking steps to providing a solution for.
- So the Byzantine Generals problem,
it's this paper that Leslie Lamport published in 1982,
where he has this thought experiments
where if you have two generals
that are kind of camped out on opposite sides of a city
and they're planning when to attack the city,
then the question is,
and if how could those generals coordinate with each other?
And they could send messengers between each other,
but those messengers could get sniped
by the enemy on the road.
Some of those messages could end up being traitors
and if things could end up happening.
And with just two mess generals,
it turns out that there's kind of no solution
in a finite number of rounds
that guarantees that they will be able
to end up coordinate on the same answer.
But then in the case where you have more than two generals,
so then Leslie analyzes cases like,
are the messages kind of just oral messages?
Are the messages kind of signed messages?
So I could give you a signed message
and then you can pass along that signed message
and the third party can still verify
that I originally made that message.
And depending on those different cases,
there's kind of different bounds on,
given how many generals and how many traitors
among those generals,
and under what conditions you actually can agree
when to launch an attack.
So it's actually a big misconception
that the Byzantine generals problem was unsolved.
So Leslie Lamport solved it.
The thing that was unsolved though,
is that all of these solutions assume
that you've already agreed on,
and have a fixed list of who the generals are.
And these generals have to be kind of semi-trusted
to some extent.
They can't just be anonymous people
because if they're anonymous,
then like the enemy could just be 99% of the generals.
So in the 1980s and the 1990s,
kind of the general use case for distributed systems stuff
was more kind of enterprising stuff
where you could kind of assume that,
you know who the nodes are
that are running these kind of computer networks.
So if he wants to have some kind of
decentralized computer network
that pretends to be a single computer
and that you can kind of do kind of operations on,
then it's made out of these kind of 15 specific computers.
And we know kind of who and where they are.
And so we have a good reason to believe
that say at least 11 of them would be fine.
- And it could also be within a single system.
- Exactly.
- Almost a network of devices, sensors,
so on like in airplanes.
And I think like flight systems in general
still use these kinds of ideas.
- Yep, yep.
- So that's the 80s.
- That's the 80s and 90s.
Now the cypherpunks had a different use case in mind,
which is that they wanted to create
a fully decentralized global permissionless currency.
And the problem here is that
they didn't want any authorities
and they didn't even want any kind of
privileged list of people.
And so now the question is,
well, how do you use these techniques to create consensus
when you have no way of kind of measuring identities, right?
You have no way of kind of determining
whether or not some 99% of participants
aren't actually all the same guy.
And so the clever solution that Satoshi had,
this is kind of going back to that presentation
I made at DEF CON a few months ago,
where I said that the thing Satoshi invented
was crypto economics,
is this really neat idea that you can use economic resources
to kind of limit how many identities you can get.
And if there isn't any existing
decentralized digital currency,
then the only way to do this is with proof of work, right?
So with proof of work, the solution is just
you publish a solution to a hard mathematical puzzle
that takes some kind of clearly calculable amount
of computational power to solve, you get an identity.
And then you solve five of those puzzles,
you get five identities.
And then these are the identities
that we run the consensus algorithm between.
- So the proof of work mechanism you just described
is like the fundamental idea proposed
in the white paper that defines Bitcoin.
What's the idea of consensus that we wish to reach?
Why is consensus important here?
What is consensus?
- So the goal here in just simple technical terms
is to basically kind of wire together
a set of a large number of computers
in such a way that they kind of pretend
to the outside world to be a single computer
where that single computer keeps working
even if a large portion of the kind of constituents
the computers that make it up break.
And kind of break in arbitrary ways.
Like they could shut off,
they could try to actively break a system,
they could do lots of mean things.
So the reason why the cypherpunks wanted to do this
is because they wanted to run one particular program
on this virtual computer.
And the one particular program that they wanted to run
is just a currency system, right?
It's a system that just processes a series of transactions.
And for every transaction it verifies
that the sender has enough coins to pay for the transaction
and verifies that the digital signature is correct.
And if the checks pass then it subtracts the coins
from one account and adds the coins
to the other account roughly.
- So first of all, the proof of work idea is kind of,
I mean, at least to me seems pretty fascinating.
- It is.
- I mean, that's a, it's kind of a revolutionary idea.
I mean, is it obvious to come up with
that you can use, you can exchange
basically computational resources for identity?
- It actually has a pretty long history.
It was first proposed in a paper by Cynthia Dwork
and Nixon Naylor in 1994, I believe.
And the original use case was combating email spam.
So the idea is that if you send an email,
you have to send it with a proof of work attached.
And like this makes it reasonably cheap
to send emails to your friends,
but it makes it really expensive
to send spam to a million people.
- Yeah, that's a simple, brilliant idea.
So maybe also taking a step back.
So what is the role of blockchain in this?
What is the blockchain?
- Sure, so the blockchain, my way of thinking about it
is that it is this kind of system
where you have this kind of one virtual computer
created by a bunch of these nodes in the network.
And the reason why the term blockchain is used
is because the data structure that these systems use,
at least so far, is one where they,
different nodes in the network periodically publish blocks.
And a block is a kind of list of transactions
together with a pointer, like a hash of a previous block
that it builds on top of.
And so you have a series of blocks
that nodes in the network create
where each block points to the previous block.
And so you have this chain of them.
- Is a fault tolerance mechanism
built into the idea of blockchain
or is there a lot of possibilities of different ways
§05Transcript · 38:13–47:03
to make sure there's no funny stuff going on?
- There are indeed a lot of possibilities.
So in a kind of just simple architecture,
as I just described,
the way the fault tolerance happens is like this, right?
So you have a bunch of nodes
and they're just happily and occasionally creating blocks,
building on top of each other's blocks.
And let's say you have kind of one block,
we'll call it kind of block one.
And then someone else builds another block,
honestly, we'll call it block two.
Then we have an attacker.
And what the attacker tries to do
is the attacker tries to revert block two.
And the way they revert block two
is instead of doing the thing they're supposed to do,
which is build a block on top of block two,
they're gonna build another block on top of block one.
So you have block one, which has two children,
block two and then block two prime.
Now, this might sometimes even happen by random chance
if two nodes in the network
just happen to create blocks at the same time
and they don't hear about each other's things
before they create their own.
But this also could happen because of an attack.
Now, if this happens, you have an attack,
then in the Bitcoin system,
the nodes follow the longest chain.
So if this attack had happened
and when the original chain had more than two blocks on it,
so if it was trying to kind of revert
more than two blocks,
then everyone would just ignore it
and everyone would just keep following the regular chain.
But here, we have block two and we have block two prime
and so the two are kind of even.
And then whatever block the next block is created on top of,
so say block three is now created on top of block two prime,
then everyone agrees that block three is the new head
and block two prime is just kind of forgotten
and then everyone just kind of peacefully builds
on top of block three and the thing continues.
- So how difficult is it to mess with the system?
So how, like if we look at the general problem,
like how many, what fraction of people
who participate in the system have to be bad players
in order to mess with it truly?
Like what's your, is there a good number?
- There is.
Well, depending on kind of what your model
of the participants is
and like what kind of attack we're talking about,
it's anywhere between 23.2 and 50%.
- Of what?
- Of all of the computing power in the network.
- Sorry, so 22 and 50.
- Between 23.2 and 50%.
- And 50% can be compromised.
- So like once your portion of the total computing power
in the network goes above the 23.2 level,
then there's kind of things that you can,
mean things that you can potentially do
and as your percentage of the network kind of keeps going up,
then your ability to do mean things kind of goes higher
and then if you have above 50%,
then you can just break everything.
- So how hard is it to achieve that level?
Like it seems that so far, historically speaking,
it's been exceptionally difficult.
- This is a challenging question.
So the economic cost of acquiring that level of stuff
from scratch is fairly high.
I think it's somewhere in the low billions of dollars.
- And when you say that stuff,
you mean computational resources?
- Yeah, so specifically specialized hardware
and of ASICs that people use to solve these puzzles,
to do the mining these days.
- Small tangent.
So obviously I work a lot in deep learning with GPUs
and ASICs for that application.
And I tangentially kind of hear that so many of these,
sometimes NVIDIA GPUs are sold out
because of this other application.
Like what do, if you can comment,
I don't know if you're familiar or interested in this space,
what kind of ASICs, what kind of hardware
is generally used these days
to do the actual computation for the proof of work?
- Sure, so in the case,
and Bitcoin and Ethereum are a bit different.
So in the case of Bitcoin,
there is an algorithm called SHA-256,
it's just a hash function.
And so the puzzle is just coming up with a number
where the hash of the number is below some threshold.
And so, 'cause the hashes are designed to be random,
you just have to keep on trying different numbers
until one works.
And the ASICs are just like specialized circuits
that contain kind of circuits
for evaluating this hash over and over again.
And you have kind of like millions or billions
of these hash evaluators
and just stacked on top of each other inside of a box.
And you just keep on running the box 24/7.
- And the ASICs,
there's literally specialized hardware designed for this?
- Yes.
- Wow, this is, we live in an amazing world.
Another tangent, and I'll come back to the basics,
but does quantum computing throw a wrench into any of this?
- Very good question.
So quantum computers have two main families of algorithms
that are relevant to cryptography.
One is a Shor's algorithm.
And Shor's algorithm is one that kind of completely breaks
the hardness of some specific kinds
of mathematical problems.
So the one that you've probably heard of
is it makes it very easy to factor numbers.
So like figure out kind of what prime factors are
that kind of, that you need to multiply together
to get some number, even if that number is extremely big.
Shor's algorithm can also be used
to break elliptic curve cryptography.
It can break like any kind of hidden order groups.
So it breaks a lot of kind of cryptographic nice things
that we're used to.
But the good news is that for every kind of major use
of things that Shor's algorithm breaks,
we already know of quantum proof alternatives.
Now we don't use these quantum proof alternatives yet
because in many cases they're five to 10 times
less efficient, but the crypto industry in general
kind of knows that this is coming eventually
and that's kind of ready to take the hit
and switch to that stuff when we have to.
The second algorithm that is relevant to cryptography
is Grover's algorithm.
And in Grover's algorithm might even be a bit more familiar
to AI people that's basically usually described
as solving search problems.
But the idea here is that if you have a problem
of the form, find a number that satisfies some property,
then if with a classical computer,
you need to try out of N times before you find the number,
then with a quantum computer,
you only need to do a square root of N computations.
And Grover's could potentially be used for mining,
but there's two possibilities here.
One is that Grover's could be used for mining
and whoever creates the first working quantum computer
that could do Grover's will just mine way faster
than everyone else.
And we'll see another round of what we saw
when ASICs came out, which is that kind of the new hardware
just kind of dominated the old stuff.
And then eventually it switched to a new equilibrium.
- But by the way, way faster, not exponentially faster.
- Quadratically faster.
- Quadratically faster, which is not sort of,
it's not game changing, I would say.
It's like ASICs, like you said, it would be.
- Exactly.
Yeah, so it would not necessarily break proof of work
as a thing. - That's right, yeah.
The other kind of possible world, right,
is that quantum computers have a lot of overhead.
There's a lot of complexity involved
in maintaining quantum states.
And there's also, as we've been realizing recently,
making quantum computers actually work
requires sort of quantum error correction,
which requires kind of a thousand real qubits
per logical qubit.
And so there's the very real possibility
that the overhead of running a quantum computer
will be higher than the speedup you get with Grovers,
which would be kind of sad, but which would also mean
that the given proof of work would just keep working fine.
- So, beautifully put.
So proof of work is the core idea of Bitcoin.
Is there other core ideas before we kind of
take a step towards the origin story and ideas of Ethereum?
Is there other stuff that were key
to the white paper of Bitcoin?
- There's proof of work,
and then there's just the cryptography,
just kind of public keys and signatures
that are used to verify transactions.
Those two are the big things.
- So then what is the origin story?
Maybe the human side,
but also the technical side of Ethereum.
- Sure.
So I joined the Bitcoin community in 2011,
and I started by just writing.
§06Transcript · 47:06–55:53
I first wrote for this sort of online thing
called Bitcoin Weekly.
Then I started writing for Bitcoin Magazine.
- Sorry to interrupt.
I'm just trying to figure out
if this funny kind of story, true or not,
is that you were disillusioned by the downsides
of centralized control from your experience
with, wow, World of Warcraft.
Is this true or you're just being witty?
- I mean, the event is true.
The fact that that's the reason
I do decentralization is witty.
- Maybe just a small tangent.
Have you always had a skepticism of centralized control?
Is that sort of--
- To some degree, yeah.
- Has that feeling evolved over time
or has that just always been a core feeling
that decentralized control is the future of human society?
- It's definitely been something
that felt very attractive to me
ever since I could have learned
that such a thing is possible.
- It's possible even technically.
So great.
So you joined the Bitcoin community in 2011,
you said you began writing.
So what's next?
- Started writing,
moved from high school to university
halfway in between that,
spent a year in university.
Then at the end of that year,
I dropped out to do Bitcoin things full-time.
And this was a combination
of continuing to write Bitcoin magazine,
but also increasingly work on software projects.
And I traveled around the world for about six months
and just going to different Bitcoin communities.
Like I went to first in New Hampshire,
then Spain, other European places,
Israel, and then San Francisco.
And along the way, I've met a lot of other people
that are working on different Bitcoin projects.
And when I was in Israel,
there were some kind of very smart teams there
that were working on ideas
that people were starting to kind of call Bitcoin 2.0.
So one of these was covered coins,
which is basically saying that,
"Hey, let's not just use the blockchain for Bitcoin,
but let's also issue other kinds of assets on it."
And then there was a protocol called MasterCoin
that supported issuing assets,
but also supported many other things,
like financial contracts, like domain name registration,
and a lot of different things together.
And I spent some time working with these teams,
and I quickly kind of realized
that this MasterCoin protocol could be improved
by kind of generalizing it more, right?
So the analogy I use is that the MasterCoin protocol
was like the Swiss Army knife.
You have 25 different transaction types
for 25 different applications.
But what I realized is that you could replace
a bunch of them with things that are more general purpose.
So one of them was that you could replace
like three transaction types
for three types of financial contracts
with a generic transaction type for a financial contract
that just lets you specify a mathematical formula
for kind of how much money each side gets.
- By the way, just a small pause.
What's, you say financial contract,
just the terminology, what is a contract?
What's a financial contract?
- So this is just generally an agreement
where kind of either one or two parties
kind of put collateral kind of in,
and then depending on kind of certain conditions,
like this could involve prices of assets,
this could involve the actions of the two parties,
it could involve other things.
They kind of get different amounts of assets out
that just depend on things that happened.
- So a contract is really,
a financial contract is the core,
it's the core interactive element of a financial system.
- Yeah, there's many different kinds of financial contracts.
Like there's things like options
where you kind of give someone the right to buy a thing
that you have for some specific price
for some period of time.
There's contracts for difference
where you basically are kind of making a bet
that says like for every dollar this thing goes up,
I'll give you $7 or for every dollar the thing goes down,
you give me $7 or something like that.
- But the main idea that these contracts
have to be enforced and trusted.
- Yes, exactly.
- You have to trust that they will work out
in a system where nobody can be trusted.
- Yes.
- This is such a beautiful, complicated system.
Okay, so you were seeking to kind of generalize
this basic framework of contracts.
So what does that entail?
So what technically are the steps to creating Ethereum?
- Sure, so I guess just to kind of continue a bit
with this MasterCoin story.
So started by kind of giving ideas
for how to generalize the thing.
And eventually this turned into a much more
kind of fully fledged proposal that just says,
hey, how about you scrap all your futures
and instead you just put in this programming language?
And I gave this idea to them and their response
was something like, hey, this is great,
but this seems complicated and it seems like something
that we're not gonna be able to put onto our roadmap
for a while.
And my response to this was like, wait,
do you not realize how revolutionary this is?
Well, I'll just go do it myself.
And then I--
- What was the name of the programming language?
- I just called it ultimate scripting.
- Great.
- So then I kind of went through a couple more rounds
of iteration and then the idea for Ethereum itself
started to form.
And the idea here is that you just have a blockchain
where the core unit of the thing is what we call contracts.
It's these kind of accounts that can hold assets
and they have their own internal memory,
but that are controlled by a piece of code.
And so if I send some ether to a contract,
the only thing that can determine where that ether,
the currency inside Ethereum goes after that
is the code of that contract itself.
And so basically you're kind of sending assets
to computer programs becomes this kind of paradigm
for creating these sort of self-executing agreements.
- Self-executing, it's so cool that code
is sort of part of this contract.
So that's what's meant by smart contracts.
- Yeah.
- So how hard was it to build this kind of thing?
- Harder than expected.
And originally I actually thought that this would be a thing
that I would kind of casually work on
for a couple of months, publish,
and then go back to university.
Then I released it and a bunch of people,
or I released a white paper.
- The white paper, the idea is there.
- The idea, the white paper.
A whole bunch of people came in offering to help,
a huge number of people have expressed interest.
And this was something I was totally not expecting.
And then I realized that this would be something
that's kind of much bigger than I had ever thought
that it would be.
And then we started on this kind of much longer
development slog of making something that lives up
to this much higher level of expectations.
- What are some of the,
is it fundamentally like software engineering challenges?
- It was.
- Is there social, okay, so there's--
- And social.
- So what are the biggest interesting challenges
that you've learned about human civilization
and software engineering through this process?
- So I guess one of the challenges for me
is that I'm one of the kind of apparently unusual geeks
who has kind of never treated with anything
but kindness in school.
And so when I got into crypto,
I kind of expected everyone would just kind of be
the same kind of altruistic and nice in that same way.
But the algorithm that I used for finding co-founders
for this thing was not very good.
It was sort of literally what computer scientists
called the greedy algorithm.
It's sort of the first 15 people who replied back
offering to help kind of are the co-founders.
- So you mean like literally the people
that will form to be the co-founders of the community,
the algorithm, I like how you call it the algorithm.
- Yeah, and so what happened was that these,
like especially as the project got really big,
like there started to be a lot of this kind of infighting
and there were a lot of,
like I wanted the thing to be a nonprofit
and some of them wanted to be a for-profit.
And then there started to be people
§07Transcript · 55:56–1:04:43
who were just kind of totally unable to work with each other.
There were people that were kind of trying
to get an advantage for themselves
in a lot of different ways.
And this just about six months later
led to this big governance crisis.
And then we kind of reshuffled leadership a bit.
And then the project kept on going.
Then nine months later, there was another governance crisis.
And then there was a third governance crisis.
And so is there a way to,
if you're looking at the human side of things,
is there a way to optimize this aspect
of the cryptocurrency world?
It seems that there is, from my perspective,
there's a lot of different characters
and personalities and egos.
And like you said, I don't know if,
I also like to think that most of the world,
most of the people in the world are well-intentioned,
but the way those intentions are realized
may perhaps come off as negative.
Like what, is there a hopeful message here
about creating a governance structure for cryptocurrency
that where everyone gets along?
- I mean, after about four rounds of reshuffle,
like I think we've actually come up with something
that seems to be pretty stable and happy.
I think, I mean, I definitely do think that
most people are well-intentioned.
I just think that one of the reasons
why I like decentralization is just because there's like
this thing about power where power attracts people
with egos and so that just allows us
a very small percentage of people
to just ruin so many things.
- You think ego has a, you think ego has a use?
Like is ego always bad?
It seems like some of the most--
- It sometimes does.
But then the Ethereum research team,
I feel like we've found also kind of a lot of very good
people that are just primarily just interested
in things for the technology
and things seem to just generally be going quite well.
- Yeah, when the focus and the passion is in the tech.
So that's the human side of things.
The technology side, like what have you learned?
What have been the biggest challenges
bringing Ethereum to life on the technology side?
- So I think first of all, just,
you know, there's like the first law of software development
which is that when someone gives you a timetable,
I'm gonna switch the unit of time
to the next largest unit of time and add one.
And we basically fell victim to that.
And so instead of taking like three months,
it ended up taking like 20 months to launch the thing.
And that was just, I think,
underestimating the sheer technical complexity
of the thing.
There are research challenges.
Like, so for example,
one of the things that we've been saying
from the start that we would do,
one is a switch from a proof of work to a proof of stake.
More proof of stake is this alternative consensus mechanism
where instead of having to waste a lot of computing power
on solving these mathematical puzzles
that don't mean anything,
you kind of prove that you have access to coins
inside of the system.
And this kind of gives you some level of participation
in the consensus.
- Can you maybe elaborate on that a little bit?
I understand the idea of proof of work.
I know that a lot of people say
that the idea of proof of stake is really appealing.
Can you maybe link on it a little longer,
explain what it is?
- Sure.
So basically the idea is like,
if I kind of lock up a hundred coins,
then I turn that into a kind of quote virtual miner
and the system itself kind of automatically
and randomly assigns that in a virtual miner
the right to create blocks at particular intervals.
And then if someone else has 200 coins
and they lock on the lock, there's 200 coins,
then they get a kind of twice as big virtual miner,
they'll be able to create blocks twice as often.
So it tries to do similar things to proof of work,
except instead of the thing
and of rate limiting your participation
being your ability to crank out solutions
to kind of hash challenges,
the thing that really limits your participation
is kind of how much coins
you're kind of locking into this mechanism.
- Okay, so interesting.
So that limited participation
doesn't require you to run a lot of compute.
Does that mean that the richer you are,
so rich people are more,
like their identity is more stable,
verifiable or whatever the right terminology is.
- Right, and this is definitely a common critique.
I think my usual answer to this is that
like proof of work is even more of that kind of system.
- Yes, exactly.
I didn't mean it in that statement as a criticism.
I think you're exactly right.
That's equivalent.
The proof of work is the same kind of thing,
but in the proof of work,
you have to also use physical resources.
- Yes, and burn computers and burn trees
and all of that stuff.
- Is there a way to mess with the system
over the proof of stake?
- There is, but you will once again need to have
a very large portion of all the coins
that are locked in the system to do anything bad.
- Got it.
Yeah, and just that maybe take a small change.
One of the criticisms of cryptocurrency is the fact
that I guess for the proof of work mechanism,
you have to use so much energy in the world.
- Yes.
- Is one of the motivations of proof of stake
is to move away from this?
- Definitely.
- Like what's your sense of the,
maybe I'm just under-informed.
Is there like legitimately environmental impact from this?
- Yeah, so the latest thing was that Bitcoin consumed
as much energy as the country of Austria
or something like that.
Yeah, and then Ethereum is like right now,
only like half an order of magnitude smaller than Bitcoin.
- I've heard you talk about Ethereum 2.0.
So what's the dream of Ethereum 2.0?
What's the status of proof of stake as a mechanism
that Ethereum moves towards?
And also, how do you move to a different mechanism
of consensus within a cryptocurrency?
- So Ethereum 2.0 is a collection of major upgrades
that we've wanted to do to Ethereum for quite some time.
The two big ones, one is a proof of stake
and the other is what we call sharding.
Sharding solves another problem with blockchains,
which is a scalability.
And what sharding does is it basically says,
instead of every participant in the network
having to personally download
and verify every transaction,
every participant in the network only downloads
and verifies a small portion of transactions.
And then you kind of randomly distribute
who gets how much work.
And because of how the distribution is random,
it still has the property that you need a large portion
of the entire network to corrupt what's going on
inside of any shard,
but the system is still very redundant and very secure.
- That's brilliant.
How hard is that to implement
and how hard is proof of stake to implement?
Like on the technical level, software level.
- Proof of stake and sharding are both challenging.
I'd say sharding is a bit more challenging.
The reason is that proof of stake is kind of just a change
to how the consensus layer works.
Sharding does both that,
but it's also a change to the networking layer.
The reason is that sharding is kind of pointless
if at the networking layer, you still do what you do today,
which is you kind of gossip everything,
which means that if someone publishes something,
every other node and the client hears it
from on the networking layer.
And so instead we have to have kind of sub networks
and the ability to quickly switch between sub networks
and other sub networks, talk to each other.
And this is all doable,
but it's a more complex architecture
and it's definitely the sort of thing
that has not yet been done in cryptocurrency.
- So most of the networking layer in cryptocurrency
is you're shouting, you're like broadcasting messages.
And this is more like ad hoc networks.
- Yeah, you're shouting within smaller groups.
- Smaller group, but do you have like a bunch of sub net?
- Exactly.
- Then you have to switch between,
oh man, I'd love to see that.
So it's a beautiful idea.
So from a graph theoretic perspective,
but just the software, like who's responsible?
Is the Ethereum project, like the people involved,
§08Transcript · 1:04:46–1:13:29
would they be implementing?
Like what's the actual,
you know, this is like legit software engineering.
Who, like how does that work?
How do people collaborate, build that kind of project?
Is this like almost,
like is there a software engineering lead?
Is there, is it a legit,
almost like large scale open source project?
- There is, yeah.
So we have someone named Danny Ryan on our team
who has just been brilliant and great all around.
And he is a kind of de facto
kind of development coordinator, I guess.
It's like, you have to invent job titles for this stuff.
The reason is that,
like we also have this unique kind of organizational
structure where the Ethereum Foundation itself
kind of does research in-house,
but then the actual implementation is done
by independent teams that are separate companies
and they're located all around the world
and like fun places like Australia.
And so, you know, you kind of just need a bunch of
kind of almost nonstop cat herding to just
keep getting these people to kind of talk to each other
and kind of implement the spec,
make sure that everyone agrees on kind of what's going on
and kind of how to interpret different things.
- So how far into the future are we
from these two mechanisms in Ethereum 2.0?
Like what's your sense of the timeline,
keeping in mind the previous comment you made
about the sort of general curse of software projects?
- So Ethereum 2.0 is split into three phases.
So phase zero just creates a proof of stake network
and it's actually separate from kind of proof of,
the proof of work network at the beginning,
just to kind of give it time to grow and improve itself.
- Do people get to choose, sorry to interrupt,
do people get to choose, I guess, which-
- Yes, they get to choose to move over if they want to.
Then phase one adds sharding,
but it only adds sharding of kind of data storage
and not sharding of computation.
And then after that, there is kind of the merger phase,
which is where the accounts, kind of smart contracts,
like all of the kind of activity
on the existing ETH1 system,
just kind of gets cut and pasted into ETH2.
And then the proof of work chain gets forgotten.
And then all the things that were living there before
just kind of continue living
inside of the proof of stake system.
So for timelines, phase zero has been,
kind of almost fully implemented.
And now it's just a matter of a whole bunch
of security auditing and testing.
My own experience is that right now,
it feels like we're at about a phase
comparable to when we were doing
the original Ethereum launch,
when we were maybe about four months away from launch.
- So that's just a hunch, then you can-
- That's just a hunch, yeah.
- So how, you know, it took like over a decade
for people to move from Python 2 to Python 3.
How do you see the move from like this phase zero
for different consensus mechanism?
Do you see there being a drastic phase shift
in people just kind of jumping to this better mechanism?
- So in phase zero, I don't expect too many people
to do much because in phase zero and phase one,
the new chain, they get it deliberately
and it doesn't have too much functionality turned on.
It's there just like,
if you want to be a proof of stake validator,
you can get things started.
If you want to store data
for other blockchain applications, you can get started.
But existing applications will largely
keep living on each one.
And then when the merger happens,
then the merger is a operation that happens all at once.
So that's kind of one of the benefits
of a consensus system, that like on the one hand,
you have to coordinate the upgrade,
but on the other hand, the upgrade can be coordinated.
- So what's CasperFFG by the way?
- CasperFFG is the consensus algorithm
that we are using for the proof of stake.
- Is there something interesting,
specific about CasperFFG,
like some beautiful aspect of it that's-
- There is.
So CasperFFG combines together kind of two different schools
of a consensus algorithm design.
So the general two different schools
of the design are, right?
One is a 50% fault tolerant,
but dependent on network synchrony.
So 50% fault tolerant,
but it didn't tolerate up to 50% of faults, but not more,
but it depends on an assumption
that all of the nodes can talk to each other
within some limited period of time.
Like if I send the message,
you'll receive it within a few seconds.
And the second school is 33% fault tolerant,
but safe under asynchrony,
which means that if we agree on something,
then that thing is finalized.
And even if the network goes horribly wonky
the second after that thing is finalized,
there's no way to revert that thing.
And-
- That's fascinating how you would make that happen.
- It's definitely quite clever.
I'd recommend the CasperFFG paper.
If you just search like archive,
as in like ARXIV and CasperFFG, it's right there.
- That's an archive, the paper's an archive.
- Yeah, yeah.
- Who are the authors?
- Myself and Virgil Griffith.
- That's awesome.
I take a small tangent.
This idea of just putting out white papers and papers
and putting them on archive and just putting them publicly,
is that at the core?
Is that a necessary component of cryptocurrency?
Is that the tradition started
with Satoshi Nakamoto?
What do you make of it?
Like, what do you make of the future
of that kind of sharing of ideas?
- I guess so, yeah.
And it's definitely something that's kind of mandatory
for crypto because like crypto is all about making systems
where you don't have to trust the operators
to trust that the thing works.
And so if anything behind our system works
is closed sourced, then that kind of kills the point.
And so there is the kind of a sense
in which the fundamental properties of the category
of the thing we're trying to build
just kind of forces openness,
but also openness just has proven
to be a really great way to collaborate.
And then there's actually a lot of innovation
and academic collaboration that's just kind of happened
ad hoc in the crypto space the last few years.
So like, for example, we have this forum
called ETH Research, that's like E-T-H-R-E-S-E-A-R
and then dot C-H.
And there we publish kind of just ideas
in a form that's kind of half formal,
like it's halfway in between,
like it's a kind of a text write up
and you can have math in it,
but it's often in a much shorter than a paper.
And it turns out that the great majority of new ideas,
like they're just kind of fairly small nuggets
that you can explain in like five to 10 lines
and they don't really--
- They don't need the whole formality of a paper.
- Exactly, they don't require the kind of like 10 pages
of any filler and so--
- Introduction and conclusion is not needed.
- Yeah, and so instead you just kind of publish the idea
and then people can go comment on it.
- That's brilliant.
- Yeah, this has been great for us.
- I think I interrupted you.
Was there something else on Casper FFG?
- Yeah, so just Casper FFG is just kind of combines together
these two schools.
And so basically it creates this system
where if you have more than 50% that are honest
then and you have a network synchrony,
then the thing kind of goes as a chain.
But then if network synchrony fails,
then kind of the last few blocks in the chain
might kind of get replaced.
But anything that was finalized
by this kind of more asynchronous process
can't be reverted.
And so you essentially get a kind of best of both worlds
between those two models.
- Okay, so I know what I'm doing to them.
I'm gonna be reading the Casper FFG paper.
Apologize for the romanticized question,
but what to you are some or the most beautiful idea
in the world of Ethereum?
Just something surprising, something beautiful,
something powerful.
- Yeah, I mean, I think the fact that money
can just emerge out of a database
if enough people believe in it,
I think is definitely one of those things that's up there.
§09Transcript · 1:13:32–1:22:39
I think one of the things that I really love about Ethereum
is also this concept of composability.
So this is the idea that if I build an application
on top of Ethereum,
then you can build an application
that talks to my application
and you don't even need my permission.
You don't even need to talk to me, right?
So one really fun example of this is there was this
kind of game on Ethereum called CryptoKitties
that just involved kind of breeding digital cats.
And someone else created a game called CryptoDragons,
where the way you play CryptoDragons is you have a dragon
and you have to feed it CryptoKitties.
And they just created the whole thing
just like as an Ethereum contract
that you would send these tokens
that are defined by this other Ethereum contract.
And for the interoperability to happen,
like the projects don't really need to,
like the teams don't really need to talk to each other.
You just kind of interface with the existing program.
- So it's arbitrarily composable in this kind of way.
So you have different groups that could be working.
So you could see it scaling to just
outside of dragons and kitties,
it could be, you could build like entire ecosystems
of software in this kind of way.
- Yeah, I mean, especially in the decentralized finance
space that's been popping up in the last two years,
there has been a huge amount of really interesting things
happen as a result of this.
- Is it a particular kind of like financial applications
kind of thing?
- Yeah, I mean, there's like stable coins.
So this is a kind of tokens retain value equal to $1,
but they're kind of backed by a cryptocurrency.
Then there's decentralized exchanges.
So, well, as far as decentralized exchanges goes,
there's this really interesting construction
that has existed for about one and a half years now
called Uniswap.
So what Uniswap is, it's a smart contract
that holds the balances of two tokens.
We'll call them token A and token B.
And it maintains an invariance that the balance of token A
multiplied by the balance of token B
has to equal the same value.
And so the way that you trade against the thing
is basically like you have this kind of curve,
you know, like X times Y equals K.
And before you trade, it's at some points on the curve.
After you trade, you just like pick some different,
any other points on the curve.
And then whatever the delta X is,
that's the amount of A tokens you provide.
Whatever the delta Y is,
that's the amount of B tokens you get or vice versa.
And that's just, and then kind of the slope
at the current points on the curve kind of is the price.
And so that just is the whole thing.
And that just allows you to have this exchange for tokens.
And even if there's very few participants
and the whole thing is just like so simple
and it's just very easy to set up,
very easy to participate in.
And it just provides so much value to people.
- And the fundamental,
the distributed application infrastructure
allows that somehow.
- Yes.
So this is a smart contract meeting.
This is all a computer program
that's just running on Ethereum.
- Smart contracts too are just fascinating.
- They are.
- Okay.
Do you think cryptocurrency may become the main currency
in the world one day?
So where do you think we're headed in terms of
the role of currency,
the structure type of currency in the world?
- I definitely expect fiat currencies to continue to exist
and continue to be strong.
And I definitely expect kind of fiat currencies
to also digitize in their own way
over the next couple of decades.
- What's fiat currency by the way?
- Oh, just like things like US dollars
and like dollars and euros and yen and these other things.
- And they're sort of backed by governments.
- Yes.
But I also expect sort of cryptocurrencies
to play this sort of important role
in just making sure that people always have an alternative
if fiat currencies start breaking.
So like if, or if you're in, you know,
some very high inflation place like Venezuela, for example,
or if your country just kind of gets cut off from,
cut off from other financial systems
because of something the banks do,
like if any kind of,
if there's even like some major trade disruption
or something worse happens,
then like cryptocurrencies are the sort of thing
that just because of their kind of global neutrality,
they're just kind of always there
and you can keep using them.
- It's interesting that you're quite humble
about the possibilities of the future of cryptocurrency.
You don't think there's a possible future
where it becomes the main set of currency
because it feels like fiat,
it feels like the centralized control
by governments of currency is limiting somehow,
maybe my naive utopian view of the world.
- It's definitely very possible.
I mean, I think like for cryptocurrencies
being the main form of value to kind of work well,
like you do need to have some much more price stability
than they have today.
And I mean, there are now stable coins
and there are kind of cryptocurrencies
that try to be more stable than existing things
like Bitcoin and Ether,
but that just is to me kind of the main challenge.
- Do you think that's a characteristic
of just being the early days?
It's such a young concept.
10 years is nothing in the history of money.
- Yeah, and I think it's a combination of two things, right?
One is it's still early days,
but the other is a kind of more durable
and a kind of economic problem,
which is that like demand for currency is volatile, right?
Because of like recessions, booms,
changes to technology, lots of things,
and if people's demand for how much currency
they wanna hold changes.
And if you have a currency that has a fixed supply,
then the change in demand has to be entirely expressed
as a change in value of the currency.
And so what that means is that kind of the volatility
of demand becomes entirely translated into volatility
and kind of prices of things that dominated
in that currency.
But if you have a currency where instead
the supply can change and so the supply can kind of go up
when there's more demand,
then you have the supply kind of absorbing
more of that volatility and so the price of the currency
would absorb less of the volatility.
- On that topic, so Bitcoin does have a limited supply,
a specific fixed supply.
- Yes.
- What's the idea, and Ethereum doesn't,
but can you clarify just in the comments you just made,
is Ethereum qualify to the kind of currency
that you're talking about and being flexible in the supply?
- I mean, it's a bit more flexible,
but kind of the thing that you would really want
is something that's kind of specifically flexible
in response to how valuable the currency is.
And I'd recommend you look at stable coins as well.
So like things like DAI, for example, it's like-
- How do you spell that?
- DAI.
- And what's stable coins?
Is it a type of cryptocurrency?
- It is a type of cryptocurrency.
It's a type of cryptocurrency that's issued
by a smart contract, one of these Ethereum computer programs
that where the smart contract holds a bunch of ether
and then it basically, like that people deposit
and then it issues DAI and the reason why people deposit
is because they want to kind of go high leverage
on their ether.
And so it kind of pairs these two sets of users,
one that wants stability and one that kind of wants
extra risk together with each other.
And it basically creates some,
or gives one set of participants a guarantee
that they'll be paid, that they have this asset
that can be later converted back into ether,
but specifically at kind of the $1 rate.
- And it has some kind of a stabilizing network effects.
- Yeah, it has this.
Yeah, it has many kinds of stabilizing mechanisms in it.
- That's fascinating.
Okay, this world is awesome technically,
just from a scientific perspective, it's an awesome world
that I often don't see from an outsider's perspective.
What I often see is kind of maybe hype
and a little bit, if I may say so, like charlatanism.
And you don't often see, at least from my outsider's
perspective, the beautiful science of it
and the engineering of it.
Maybe, is there a comment you can make
of who to follow, how to learn about this world
without being interrupted by the charlatans
§10Transcript · 1:22:44–1:32:02
and the hype people in this space?
- I think you do need to just know the specific
kind of just people to follow.
Like there's all the kind of the cryptographers
and the researchers, and there's just like,
even just the Ethereum research crew,
like myself, like Dan Kradt, Danny Justin,
the other people, and then the academic cryptographers.
Before this today, I was at Stanford,
and Stanford has the Center for Blockchain Research,
and Dan Bonet, that's a really famous
and great cryptographer, was running it.
And there's a lot of other people there,
and there's people working on zero-knowledge proofs,
for example, and Zuko from Zcash
is one other person that I respect.
So I think if you follow the technical--
- You just crawl along that--
- Yeah, yeah, you just kind of crawl.
- Start with the Ethereum group,
and then look at the academics, Dan Bonet and so on,
and then just cautiously expand the network
of people you follow.
- Yeah, exactly, and like if someone seems
too self-promotional, then just like remove 'em.
Is there books that are, there's these white papers,
and we just discussed about ideas being condescend
to really small parts.
Is there books that are emerging that are kind of
good introductory material for cryptographers?
- So for historical ones,
there's like Nathaniel Popper's "Digital Gold,"
which is just about the history of Bitcoin.
There's one, I think Matthew Leising announced
that there's one about the history of Ethereum.
For technical ones, there's Andrea Santanopoulos'
"Mastering Ethereum."
- Great, so let me ask you sort of,
sorry, to pull back to the idea of governments
and decentralized currency.
You know, there's a tension between decentralization
of currency and the power of nations,
the power of governments.
What's your sense about that tension?
Is there some rule for regulation of currency?
You've, yeah, is there, like,
is the government the enemy of digital currency,
of distributed currency,
or can they be like cautious friends?
- I mean, I think like,
the one thing that people forget is that
it's clearly not entirely an enemy,
because I think if there hadn't been
so much government regulation on
a kind of centralized,
issuing centralized digital currencies,
then we'd be seeing things,
people like Google and Facebook and Twitter
just kind of issuing them left and right.
And then, like, if that was the case,
then decentralized currencies would still appeal
to some people, but they definitely would appeal
to less people than today.
So even in that sense, I think it's
clearly been more of a,
just kind of set the stage for the existence
of the sector in some ways.
But also, and I think some of both,
there's definitely things that governments
can do, in some cases, have done to
hurt the spread of, and of growth of blockchains.
There's things that they've done to help,
and they've, in some cases, definitely done a good job
of going after fraudulent projects,
going after some of the projects that have
some of the kind of craziest and most misleading marketing.
There's also the possibility that governments
will end up using blockchains for a lot of different things.
Governments, yeah, they do a lot more
than just regulating, right?
There's also, they have the kind of
identity records, and they have property registries,
even their own currency is secured,
lots of different kind of things that they're operating.
And there's even blockchain applications in a lot of those.
- Yeah, and they can leverage technology
to do a lot of good for our societies.
It is a little unfortunate that governments
often lag behind in terms of their acceptance
and leverage of technology.
If you look at the autonomous vehicle space,
AI in general, they're a few years behind.
It'd be nice to help them catch up.
That's an always ongoing problem.
You met Vladimir Putin to discuss
the centralized currency here.
You're born in, where were you born?
- Kolomna, it's a city about 115 kilometers south of Moscow.
- In Russia? - Yes.
- Yeah, I grew up in Moscow.
I mean, Vladimir Putin is a central figure
in this part of the world.
So what was that like meeting him?
What was that experience like?
- He's taller in photos than in person.
- Yeah, he's, yeah, that's right.
He's five seven, I think, five eight, maybe.
- Yeah, and that's, unfortunately,
we didn't actually kind of have too much of a chance
to talk to him.
Like I managed to see him for about one minute
at the end of this meeting.
And I did get a chance to see a lot,
some of the other end of government ministers
and he recommended some.
And some of them are actually interested
in trying to use blockchains to,
like for various government use cases,
they're gonna have a little bit of corruption
and other things.
And I have, it's hard to tell from one conversation
kind of what things are genuine
and what things are just like, oh, blockchain is cool,
let's do blockchain.
- Right, but when I listened to like Barack Obama
talk about artificial intelligence,
there's certain things I hear where,
okay, so he might not be an expert in AI,
but he actually studied it carefully enough
to think about it.
Even if it's just reading a Wikipedia page,
like he really thought about what this technology means.
Did you get a sense that Putin or some of the ministers
like thought about blockchain,
like thought about the fundamentals of technology,
or like understand it intuitively,
or are they too old school to try to grasp it?
- Some are old school, some are more new school.
It depends, it's definitely,
it depends on who you talk to.
- I mean, that's an open question for me with Putin
because Putin has said some stuff about AI.
- I don't know, as I said,
I've only talked to him for about one minute, so.
- But sometimes you can pick up sort of insights.
As a quick comment, they're about,
maybe you can correct me on this,
but they're about 3,000 cryptocurrencies
being actively traded.
- Yes.
- And Ethereum is one of,
you know, a lot of people believe
that Ethereum will be the main cryptocurrency.
I think Bitcoin is currently still the main cryptocurrency,
but Ethereum very likely might become the main one.
Is this kind of diversity good in the crypto world?
Do you see it sticking around?
Should there be a winner?
Like, should there be some consensus globally
around Bitcoin or around Ethereum?
Like, what's your sense?
- I definitely think the diversity is good.
And I definitely think also
that there's probably too many people
trying to make separate blockchains right now.
The number should definitely be greater than one
and probably greater than two or even five.
- Not 3,000.
- Not 3,000, yeah.
And also not even like 40 high quality platforms
that try to do the same thing.
And there's definitely this range
from just like one person who just like wrongly thinks
that you can create a cryptocurrency in like 12 hours
and doesn't even think about kind of the community aspects
of maintaining it,
going to people actually trying
but only creating a really tiny one,
to like scammers,
to people like making something
that's actually successful.
And then there's a lot of different categories of blockchain
and of project in terms of what it's trying to do
and what applications it's for.
And I think the experimentation is definitely healthy.
- If you look at the two worlds,
it might be a little bit disjoints,
but the distributed applications, cryptocurrency,
and then the world of artificial intelligence.
Do you see there's some overlap between these worlds
that both worry about centralized control?
Is there some overlap that's interesting
that you think about, do you think about AI much?
- Yeah, and I think definitely I would have thought
about things like the AI head of control problems
and a lot of the problems and all of those things.
- Do you worry about the existential threat of AI?
- That's definitely one of the things I worry about.
I think block, there's a lot of kind of common challenges
because in both cases, what you're ultimately trying to do
§11Transcript · 1:32:05–1:34:57
is you're trying to kind of get a simple system
to direct a more complex system.
Like in the case of this strong AI,
the idea would be that the simple system is people
and the complex system is, well, whatever thing
the people end up kind of unleashing on the universe
that'll hopefully be a great thing.
And in the case of blockchains,
kind of the complex, well, the simple thing is
the algorithm, which is a piece of static
and fully open source code.
And the more complex thing is just all
of the different possible kind of human actors
and of the strategies that they might end up use
to participate in the network.
- Do you think about your own mortality?
Like what you hope to accomplish in your life?
- Oh, I definitely think about ending my own mortality.
- So that's, if I gave you the option to live forever,
would you?
- Depends a lot on what the fine birds is.
But I mean, if it's one of those things
where I'm gonna be kind of like floating through empty space
for 10 to the 75 years, then no.
If it's a forever worth of,
and of having a fulfilling life
with friends to spend the time with,
with kind of meaningful challenges to explore
and interesting things to be working on,
then I think absolutely move.
- That's a beautifully put.
Live forever, but you'd have to check the fine print.
I think there's no better way to end it.
Vitalik, thank you so much for talking to us.
So exciting to follow your work from a distance.
And thank you for creating a revolutionary idea
and sticking with it and building it out
and doing some incredible engineering work.
And thanks for talking today.
- Yeah, thank you.
- Thanks for listening to this conversation
with Vitalik Buterin.
And thank you to our sponsors, ExpressVPN and Masterclass.
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And now let me leave you with some words
from Vitalik Buterin.
The thing that I often ask startups on top of Ethereum is,
can you please tell me why using Ethereum blockchain
is better than using Excel?
And if they can come up with a good answer,
that's when you know you got something really interesting.
Thank you for listening and hope to see you next time.
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