Silicon Valley Rinpoche Naval Dialogue with V God: Everything About ETH

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Contributor：Trinity，twitter@miseswei

Vitalik: Ethereum, Part 1

Naval: Welcome back to the podcast. We had Haseeb Qureshi, a partner at Dragonfly, who I used to work with when I was active in the cryptocurrency space. And Vitalik Buterin, a learned genius - as much as he may be offended by the characterization - who created Ethereum, the first smart contract blockchain capable of capturing any transaction volume, and changed us The whole picture of blockchain computing as we know it.

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Haseeb's background

Haseeb: I'm a software engineer and now an investor. I've been running Dragonfly Capital, a global crypto fund -- we only invest in cryptocurrencies -- for over four years.

It's funny because when I first got into cryptocurrency, I remember actually being at IC3, an academic cryptocurrency conference, where I first met you and Vitalik. I just quit my job as a software engineer at Airbnb, and I remember asking you, "What do you think is the most important problem with cryptocurrencies?" Your answer was about wallets. You said at the time, "I think it's important to create more wallets." At that time I only had a vague understanding of what building a wallet meant. This is what triggered me down the rabbit hole of Ethereum.

In the early days of my first real deep dive into cryptocurrencies, after that IC3 conference, I remember leaving with a strong feeling that Bitcoin was dying. I thought at the time, "Look at the intellectual energy and character that the Ethereum world is bursting out at, how obvious and huge incremental improvement (Delta) exists compared to the BTC world. This is what I said in IC3 felt, and I see a lot of quasi-religious anger and enthusiasm in the Bitcoin world, rather than a lot of innovation.”

My understanding of this was rudimentary at the time, but this was the opportunity for my first full-time allin cryptocurrency, through small interactions between you and me at the time.

Naval: If I recall correctly, you also have a background as a poker player.

Haseeb: Right. I was a professional poker player for over 5 years before I entered the tech world.

Naval: Before we got into crypto, a lot of us were either in Magic: The Gathering or poker.

Vitalik: Or World of Warcraft.

Naval: Maybe our line of work is mostly geeks and gamers.

Haseeb: I actually think the scope of this group of people is larger than what you mentioned. I have a theory that we have also exchanged before. Every generation has some hustle (struggle) opportunity, if you are really smart, very aggressive in finding the edge (edge) and not afraid of looking weird, there are some ways to get you early Or make a lot of money in ways that most people don't see as obvious or subversive. These opportunities are often those areas where your parents would object that you devote too much time.

In my day, that was poker. For a while it became fantasy sports, then it became cryptocurrency, then it became DeFi and liquidity mining, and most recently it became NFT trading. Two years later something else will happen. When NFTs are very specialized and there isn't much alpha to convert, something else will happen and young and really horny people who aren't afraid to look stupid themselves will make a lot of money with these new opportunities.

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Vitalik's Background

Vitalik: I was born in Russia and immigrated to Canada when I was 6 years old. When I was in high school, I had learned a lot of math and a lot of programming, and then I discovered this interesting bitcoin. It fascinated me immediately because it combined all my interests at the time.

Bitcoin has mathematics, cryptography, computer science, and it's completely open source, and I really liked open source software at the time. Including economics and politics. At that time, I had already paid attention to the Austrian school of economics. Bitcoin just hits that button for all of these.

I started to join the Bitcoin community as much as I could. I browsed bitcoin forums looking for jobs that could be paid in bitcoin because I thought the point of bitcoin was that you should be earning it. I found someone who was willing to pay 5 bitcoins (then $4) per article to write articles for his blog, and I did that for a few months.

Then a poker player from Romania called Mihai Alisie contacted me and said he was starting a bitcoin magazine and wanted me to be the first writer. I immediately agreed, and I became Bitcoin Magazine's first writer.

I started writing more and more Bitcoin-related articles, learning about Bitcoin, and eventually started getting involved in more programming-related projects. I did some work for an organization called Bitcoin X and started digging deeper and deeper into the space.

Then in the middle of 2013, I decided to take half a year off from college and travel the world, visiting every bitcoin community I could find and seeing what everyone was doing. A few months later, I met a group of people who were trying to take blockchain and expand it to do things other than cryptocurrencies.

There's a project called "covert coins" that's been around for a long time that's trying to use the blockchain as this database layer and issue other kinds of assets on top of it. You can issue stocks and digital dollars on the blockchain. There is a project called "Master Coin" that is trying to expand it further to create an entire financial system to do what we call "DeFi" today. This is a very early version.

After I've been in these circles long enough, I finally have my own idea of ​​how to create a more general version of all of these ideas: not a blockchain for applications, but a blockchain that you can The blockchain on which to build any application.

This is where Ethereum comes in.

Naval: Ethereum is a blockchain on which any application can be built. And Bitcoin is clearly limited to trying to be a new currency or a new reserve currency, or what some are saying now is "digital gold". So you and a team that wrote the code were the original creators of Ethereum, and you released it. How old were you when you did this?

Vitalik: Nineteen.

Naval: How long have you been working in computing at that time? When did you start programming?

Vitalik: I started programming when I was about ten years old.

Naval: Did you teach yourself most of the time, or did you go to school? Besides your genes, what's your secret?

Vitalik: I grew up programming video games for myself. I would make a video game and play it until I was tired, then make another video game and play it until I was tired. That's pretty much how I studied all the way through high school.

Naval: Was there anything unique your parents or environment did to help you develop in programming?

Vitalik: My parents did buy me a lot of programming books. They did find me some programming classes and math classes. They must have been very supportive of my programming.

Naval: Are you in a gifted program, or are you in a regular public school system or private school?

Vitalik: Until eighth grade, I was in a gifted program or public school. Then in high school, my parents sent me to a private school, which I found to be a much better experience.

Naval: Did you meet most of the people you collaborate with online, or where did you find them?

Vitalik: Almost entirely online. The Bitcoin world lives on a forum, and unless you're in one of the major cities like New York or San Francisco, the community has been around pretty much since the beginning. Bitcoin Magazine has been an online collaborative company from the ground up. Bitcoin Weekly, the former blog of Bitcoin Magazine, has also been remote from day one.

Naval: As of today, most of your collaborators are located almost all over the world. Yeah?

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What is Ethereum?

A blockchain on which any application can be built

Naval: Ethereum came out in 2014. If I recall correctly, you had been developing for a few years before that. There was a public sale, a lot of people participated, and then in 2017, people built assets on Ethereum, and there was a boom in different kinds of tokens. Then, of course, games, NFTs, DeFi and all that stuff came along.

Let's review the evolution of Ethereum. What does Ethereum do at the core level? What is it good at? And today, what is it doing badly? What does it need to get better at?

Vitalik: I think Ethereum is a general-purpose blockchain. Therefore, it is not a blockchain of applications, but a blockchain on which any application can be built. The way to do this on Ethereum is to write a piece of code, then create a digital transaction containing that code and publish it.

When you publish this transaction and it is included in a block on the blockchain, this creates an object called a "contract". This is the virtual object tracked by the blockchain. So a contract is an object that contains a piece of code.

Now the blockchain has this object, and it contains a piece of code, like a small application that the Ethereum blockchain has maintained since then. After that, anyone can send another transaction saying "I want to talk to this object".

So as a first step, I create a transaction of an object. We will call this object X. Then step two, you want to use my application, so you send a transaction, and in your transaction you say, "I want to talk to smart contract X, and here's a small piece of data that says what I want to do with that application."

When that transaction is encoded into a block, the code I first posted runs, takes the data in the transaction as input, and interprets it in whatever way it wants.

We can illustrate this more concretely with an example.

Let's say I have a company and I want to issue shares on the blockchain. I will create a transaction that contains the program. The rules of the program would say, "What do you want to do with the stock?" And then I said it's allowed to transfer the shares to other people and can upvote.

The program will interpret any data it thinks is an instruction to transfer your shares to someone else or an instruction to vote. I posted the transaction and the whole thing started. As part of that transaction, I might say, "Naval owns 50 shares, Haseeb owns 100 shares, and I own 25 shares." So now there's this thing on the blockchain, it has a piece of code. It has its own memory that says "I have 25, Haseeb has 100, Naval has 50", right?

If Naval is generous and wants to give me half of his shares, he will create a transaction that will have some data that will encode the idea that Naval wants to send 25 shares to Vitalik. Then you create a transaction, include this information and send it to the network, and this transaction will be included in a block.

Once it's included, this code will run. This code sees the transaction and says, "OK, obviously I have to transfer 25 shares from Naval to Vitalik. Before, Naval had 50, so I'm subtracting 25, and now Naval has 25. Before Vitalik had 25, now Vitalik Got 50. I'm going to write that Vitalik has 50 now. Okay."

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Advantages and disadvantages of Ethereum

Eth trades efficiency for transparency

Naval: Why is all of this happening in the cloud in a very complicated way? This is very complicated. Why not just use a regular computer? Why not just send an email?

Vitalik: Because this approach creates a very transparent and public rule record. I can guarantee that all interactions I create with this application follow the rules. No one has a back door key.

Naval: It's a trusted computer in the cloud where each of us can verify all activity. We can audit all of them and we know no one is cheating. No one else has touched my funds. Let's say I'm the one transferring the funds, but everyone can verify the code, and that's exactly the piece of code that should run. Obviously we have to make sacrifices for that too, right? It's not free.

Vitalik: Exactly. Even I, as the creator of the contract in this example, don't have the ability to go in later and say, "Oh, I changed my mind. I'm going to give myself 400 shares." Once I create and publish it, I have no other More privileges for anyone. This app doesn't even have an owner.

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So, what did you sacrifice for it?

One big thing sacrificed is efficiency.

The way all of these blockchains (including Bitcoin and Ethereum) work is that you have this network of tens of thousands of computers, each of which helps to verify transactions. When I broadcast this transaction, it goes to every computer on the network, and every computer on the network runs the code. Every computer on the network authenticates it. Every computer on the network handles it.

Naval: Parallel computing is, "I split my code across a thousand computers, and each computer runs a thousandth of the code." Now I send it to a thousand computers, and all the thousand computers to run my code.

Vitalik: Indeed, it's a very different calculation. One way to intuitively think about why it makes sense is to compare text to audio and video.

Right now we're recording a podcast, and the podcast has some audio and some video. In order to see each other in the video, there will be hundreds of thousands of bytes every second between us.

Technically, those thousands of bytes are unnecessary. We can do the whole thing through a text conversation if you want. But it's good for us to be able to hear each other's voices and see each other's expressions. Therefore, the computational overhead that people use computers to do is already huge. Video and audio are good examples.

Like plain text, Eth is simple and efficient

What happens in the blockchain is more akin to text - say Naval minus 25, Vitalik plus 25. It's very simple, very efficient stuff.

So it's perfectly feasible to have the activity of thousands of users, or even millions of users, be verified by a single computer, because blockchains can't do everything. The blockchain only does this core business logic, and the core business logic is actually not that complicated.

Only High Value Transactions Can Afford Blockchain

Haseeb: This is because of the limitations of the blockchain. This is the function you must have all the redundant constraints on the blockchain. We can only put "Naval minus 25, Vitalik plus 25" on the blockchain. In the long run, our goal is to enable more and more low-value computations to also happen on the blockchain. But now, out of necessity, only high-value transactions can afford the cost.

Naval: Going back a little bit, what you've done is you've built a computer in the cloud, a virtual computer, which is stitched together from thousands or tens of thousands of real computers, and that computer is very inefficient. It is very slow. It moves very slowly. So comparing it to the throughput of your home computer or supercomputer is nonsense. That's not the point.

But any code that runs on it is pretty trustworthy, and you know it hasn't been hacked. Now you don't need a government anymore, or you don't need a middleman like Mark Zuckerberg who runs Facebook to tell you which transactions are valid, which contracts are valid, which procedures are valid and which are not .

Cancellation of "trusted" third parties

You've eliminated the need for a trusted third party and replaced it with a trusted computer that is being audited, verified and checked by thousands or tens of thousands of other computers.

Technical complexity comes from scaling. Making this computer faster, keeping it secure, creating economic and technical incentives, there needs to be an incentive mechanism so that people want to add computers to this network, and also have disincentives to use the network. You have to pay for it, otherwise it's easy to overload.

performance of securities trading

This gigantic contraption is Ethereum. Of course, people have come up and created other smart contract blockchains. Although we call it a "smart contract" blockchain, it's actually a trusted computer in the cloud that can theoretically run any application -- but it trades performance for security, which can be achieved through decentralized to measure.

In other words, no single entity has control over the computer. It can be measured in terms of how secure the code is, whether it has been hacked, etc. There are a lot of subtle and beautiful elements that come out of it, it's just that they're not obvious at the moment.

We're used to thinking of computers as some computers run by Facebook. These are central computers run by Mark Zuckerberg and staff, whose code is not made public. Of course, I don't have permission to view the code. I'm just a user, I don't own my data, they own the data. It's in that database, and I don't have access to that database to read or write to it. I have to go to Facebook and ask them to read or write from the database. "

But now you've created a computer where the code is all open. In fact, even the data is public; but some are encrypted and some are not. Some data that anyone has the right to view. Some data that you actually need to have the encryption decryption key to access. Anyone can read from or write to it if they have the proper permissions. It's an exciting and crazy concept.

It's a true shared database, with no owners and permissions at a very granular user level, the users actually own the data. And, in fact, the user owns the network that is now run by that database. So if someone builds the next Facebook app on top of Ethereum, they can design it in such a way that users actually own the app.

"An impenetrable castle built with mathematics"

This is such a remarkable achievement behind Ethereum that it is difficult to sum it up in a few words. One way I try to do this is, "Smart contracts are castles made of mathematics that can freely transact with each other. Castles are impenetrable."

Encryption is very strong and can form a strong defense, but they are made of mathematics - very much like the video games you programmed when you were young. These are structures that anyone anywhere in the world puts together anonymously. They trade freely with each other, and the owner of each castle decides what to trade with the others.

Ethereum's limitations are latency and privacy

Now it is clear that this network still has great limitations in expansion. We've talked about how this network of computers moves at about the speed of one computer, at least until we figure out some way to expand and grow. What are the other limitations of this network? Can you give us some concrete examples of where it is suitable and where it is not?

Vitalik: Besides scaling, another important performance element of it is latency.

When I send a transaction, I have to wait about half a minute for the transaction to be included and confirmed. In the future, this will become more efficient. Maybe 10 or 12 seconds will be a reality soon. But this speed obviously does not support you to paste all the logic of real-time video games on the chain. You can use it for payments, but you probably don't want to use it for anything more real-time than payment needs.

This is a limitation.

Another limitation is the transparency property (privacy). This might be where we might have to get into some cryptography weeds. Basically, the blockchain itself is completely transparent, right? Everyone can see everything that is happening.

If we go back to the example where we issue shares of this company on the blockchain, when Naval sends me his 25 shares, everybody in the world will be able to see that. Now, in some cases this is perfectly fine, but in some cases you may need some privacy.

This is one of those areas where you can often get both privacy and security. There is this extra cryptographic math. We don't need to delve into it, but it's worth mentioning its name. This is a "zero-knowledge proof". The way I describe zero-knowledge proofs is that it's a way to prove a piece of information without revealing that information.

Let's say we're going to have the same application, my company's stock on the blockchain. In addition to the blockchain that records the numbers 25, 50, and 100, the blockchain will record the encrypted version of 25, the encrypted version of 50, and the encrypted version of 100.

Then, when Naval sends me his 25 shares, he'll say, "Here's the encrypted version of the number of shares I have now; here's the encrypted version of the new number of shares I'm going to own; An encrypted version of the quantity; and then there's a magic cryptographic proof that the numbers are aligned, which tells you that X plus Y equals Z, but doesn't reveal much more."

You can verify that everything follows the rules without verifying what a particular transaction is doing and with what parameters.

There are ways to get your privacy back

There are multiple ways to restore your security and privacy at the same time. But there are still some limits to how much privacy you can get. For example, even in this case, people can see when they interact with this particular app. If you only use the blockchain, you lose a lot of privacy. If you use a blockchain plus zero-knowledge proofs and other types of cryptography, you can usually gain a lot of privacy.

But you may gain more privacy than with a centralized case. In a traditional centralized system, Facebook runs everything and sees everything. But with these distributed type systems, there's no one in the center. There is a mathematical castle in the sky verifying proofs.

Naval: In theory we can obtain anonymous digital cash. Going a step further, we can even get anonymous smart contracts, maybe you can tell you I interact with a smart contract, but other than that the details are lost.

Vitalik: Even this is something that already exists. Zcash has been around for over five years.

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The Future of Blockchain Technology

Can Eth provide both a high level of decentralization and a high level of scaling?

Naval: Let's fast forward ten or twenty years. I know this is really long in the blockchain space because Bitcoin only came out in 2009 and Eth was only in the teens. But let's say ten or twenty years from now, we've implemented all the hard engineering we need. We've built as many technologies as we can imagine. What is the ceiling of blockchain scalability and privacy? Where will we end up?

Do we ultimately want every transaction to be private, or do you think a lot of it is public? Do you think we will use blockchain in almost all cloud computing, or only in financial and high value areas?

Vitalik: It is worth mentioning that blockchain scalability is improving rapidly. The way blockchain works today is I send a transaction, the transaction goes into the network, and every computer on the network has to verify that transaction.

Now there is scaling technology. Again, we don't have to weeds, techniques like roll-ups and sharding allow you to use the blockchain in a smarter way, you still have a lot of very redundant calculations happening, but it more efficient.

Naval: What are the different technologies? Let's take a look at those.

Vitalik: In a centralized system, you send transactions to Facebook. Facebook has a computer. A computer verifies it. In a blockchain, you have 100,000 computers. You send your transaction. All 100,000 computers verify it.

Sharding leads to more centralization

Sharding is: send your transaction. The system randomly selects 1,000 computers out of 100,000. These 1,000 computers verify it, and the transaction is accepted. Not all 100,000 computers are authenticating, only 1,000 computers are authenticating.

When you have a large number of transactions being accepted by the system, each computer in the network only needs to verify, on average, 1% of all activity. You can increase your efficiency even more. Eventually it could say that each computer doesn't even have to authenticate 1%; each computer might only need to authenticate 0.1%.

Think BitTorrent works, right? BitTorrent is also like a highly distributed network. If you want to download really popular movies, you usually can. But on BitTorrent, you don't really have every computer download every movie, because that would be crazy.

On average, a movie will have a few hundred seeders, maybe a few thousand. The number is large enough that there's redundancy and you can usually get what you want, but it's not so redundant that it becomes insanely inefficient.

The question is, can you create a network that works like BitTorrent - from a data distribution and efficiency standpoint - but still creates something that has the same verification properties as a blockchain? This is what sharding does.

One of the disadvantages of sharding is that it is technically more complex. You'd have to actually do the work to figure out what the exact rules are for these transactions to be split across the nodes, how they make them communicate with each other, and how to do this kind of distributed validation.

From a protocol standpoint, it's easier to say, "We're going to require every node in this network to be very powerful." So we're going to require every node to be pretty much a supercomputer, rather than a laptop being able to be node. If you do that, then you can make blockchains that still work like they do now, but they can process many more transactions. Maybe instead of 50 per second, they can do 1,000 or 5,000 per second.

Verifiability at the expense of scalability

The weakness of this approach — and the reason Ethereum doesn’t take it — is that it leads to more centralization. Fewer people can actually verify what's going on. The number of people who can collude to make changes to the protocol that users don't want becomes larger.

It's still more decentralized than Facebook, but it's become much less decentralized than it could be.

Maybe in some cases this is the right approach. If you want to make a decentralized video game where people don't lose millions or hundreds of millions of dollars if it gets caught, then this more centralized approach is actually perfectly fine. It's nice to have a variety of apps in the middle.

If you want something with high assurance, then you really want to maximize decentralization - the current Ethereum already provides this. It already provides this very high level of decentralization and high level of verifiability, but at the cost of scaling.

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decentralization (decentralization)

How much decentralization is appropriate?

Haseeb: I want to explore this decentralization issue further. A lot of people entering the crypto space, especially if they don't have a lot of experience, notice that decentralization is important. It’s hard to end up in the cryptocurrency space without believing that decentralization matters in some way.

But the question is: why here? You show up, there's a cultural slider around how much decentralization is appropriate. The extent of Ethereum is, “You have to be able to verify Ethereum on a laptop.” The question is, why a laptop?

Vitalik: The higher the number of users that are verified by default, the more secure our blockchain will be.

At the extreme, if no one is validating by default but 10 different staking polls, then if you try to force a change in the rules that users might not like, only 10 staking polls aggregate together and in agreement.

But, on the other hand, if you have 10,000 users, and the default way for those users to interact with the chain is that they verify it locally, and they only accept blocks if they think the blocks are valid, then if someone wants to try to push Some changes to the rules, they actually have to go find all the users, they have to convince the entire user base to agree to this.

This is a higher standard.

Haseeb: Solana is a super high throughput blockchain. It has higher hardware requirements than Ethereum.

If I were a Solana supporter, I might say, "Look, Ethereum has 5,000 weird nodes, let's say, Solana has 500" - I don't know the exact number, let's just give an example - “But it’s very hard for everyone at Solana to be completely oblivious to some fundamental glitch or security breach inside Solana, right? Yes, solana has one-tenth the number of nodes as ethereum, but They're all big enough, and they're all big enough communities that if something goes wrong, they'll all notice."

So, what's your rebuttal to Solana advocates: "Look, this is consumer-grade hardware. It's expensive consumer-grade hardware, but it's still consumer-grade hardware, and someone motivated enough can still go out and validate Solana transactions. "

What happens when the subsidy for joining a node disappears?

Vitalik: I think it's not just about the level of technical ability to run a node. The point is that once it becomes very easy to run a node, people are comfortable being a node by default, right?

If running a node is difficult, there's this constant pressure of people trying to save time and join another node. It is even possible that some people participating in proof-of-stake incentives (pos) start joining the same node. I think this actually happened with EOS a few years ago. Isn't the Solana Foundation clearly doing a lot of work right now to encourage people to run nodes?

Haseeb: All these new small nodes have a lot of subsidies, and most node providers come for the subsidies.

Vitalik: Exactly. So the question is, will the network still function this way when the subsidy disappears?

There are actually two aspects. One aspect is technical feasibility. Is it easy enough to run a node that people will continue to do it as a hobby? Even with Ethereum, there are a lot of things we can do to make running a node easier than it is now. A lot of the scaling work we're doing and a lot of the protocol changes we're making over the next few years try to move in this direction.

Stateless clients can verify chains with very little footprint on your hard drive

For example, we're working on a feature called stateless clients. The goal of a stateless client is to verify the chain with only a very small amount of information on your hard drive. Right now, an Ethereum node takes up half of my hard drive. After a stateless client it doesn't take up any of my hard drive.

Bitcoin is already in a very good position. From the perspective of node operation convenience, Bitcoin is better than Ethereum. But obviously, Bitcoin does sacrifice much lower throughput than Ethereum.

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Staking culture is difficult to cultivate

People need to feel that it's an ingrained responsibility to have a lot of this very independent validation going on, and it's a hard culture to cultivate. It's one of those things that, if lost, are hard to get back. I do think Bitcoin has this quality.

I think in Ethereum, with the development of the staking culture, it has improved recently, and I hope it continues to improve. This is indeed something that needs to be taken seriously.

These two things affect each other. If you have a culture that values ​​running a node, you have a culture that values ​​changing the protocol to make it easier to run a node. If you can support running a single node, technically, then you're more likely to have that culture.

People sometimes ask us, "Hey, why not five times the performance", and "Why don't people be required to have 10 TB hard drives?" A lot of people in Ethereum core development are actively resisting this. I think only Ethereum and Bitcoin have cultures that are willing to sacrifice to the same degree for decentralization.

New blockchain players tend to seek minimum viable decentralization

Naval: I always thought the most decentralized token would win in the end, because the whole point of blockchain is to be decentralized. Otherwise, you don't need them in the first place.

That said, it seems like with every wave that happens in the crypto space, new users come in, booms and bull markets, new users tend to seek the minimum viable decentralization. They don't care about decentralization until the bogeyman shows up and starts stomping them underfoot.

Even within decentralized finance, a lot of it is decentralized in name only. They are running a centralized front end. These teams are in well-known locations. They probably failed the Howey test to some extent. We will see how far the government will test decentralization indicators.

People don't value privacy unless someone goes to jail for it

Privacy is the same. People don't value privacy until someone goes to jail for it, and then they say, "Oh wait, I want privacy."

Right now we are in a bull market. People ignore decentralized privacy when the stakes are not that high. But after a few incidents, you start to see people focus on decentralization and privacy.

In a way, the OG knows this because most of the funds are still locked in Bitcoin. Some of it is a trend, but some of it is also a security consideration. You can deposit money in Bitcoin and forget about it for a long time. I don't believe you can do this in many other protocols that are not fully decentralized.

Privacy, which everyone seems to ignore these days.

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The Philosophy of Ethereum

Eth is "Simple Basics"

Naval: Do you see Tornado Cash and Ethereum in separate layers or separate applications, or do you ever see it folded into Ethereum at the core level?

Vitalik: Actually it will stay on a separate layer. In general, the philosophy of Ethereum is to strive for simplicity in the underlying design, allowing many additional functions to be built on top of it. There are many other blockchains that take a different philosophy. In EOS, their default wallet type contains social recovery or something like that.

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Social Recovery Wallet Makes It Easier to Be Your Own Bank

Naval: When it comes to EOS, I feel dirty. We should talk more about social recovery. Social recovery is a very interesting concept.

If you really want to be a Crypto-head, you have to own your own bank. We have to trust the third party custodian, but then you're back to normal banking. So if you want to maintain it yourself, social recovery wallets are places where you can share your wallet with your friends, family or other trusted people so that when it comes time to restore it, it only takes two-thirds, or one-third One-twentieth, or one private key can be recovered.

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Block space is getting more expensive

One thing we didn't talk about is that blockchains run block space markets. Block space is limited because of limited computing power. Therefore, you are always participating in the auction, and you pay to have the execution of your application included in the current blockchain operation. For this, you buy block space, and Ethereum block space has become quite expensive.

Things like sharding, rollup, and layer2 - which we haven't discussed yet - are all ways to create more "block space" and reduce block costs. But even though Ethereum is very expensive, high-value applications will stay on Ethereum.

If you're building Wall Street, you need the rule of law. You want equal protection under the law. You want property rights. So you pay for it. However, if you're just building a game, and you're trading magic axes and swords, which are worth a few dollars each, maybe you're just going to a blockchain that doesn't place as much emphasis on decentralization.

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innovation culture

By design, Bitcoin doesn't have much innovation

Naval: It's interesting that we didn't talk about the whole Eth ecosystem.

We're talking about scalability, I mean Eth is a decentralized culture. It's going to be decentralized first, which actually makes it attractive for high-value applications like decentralized finance, because if you transact $10,000, you're paying $50 in security fees.

One of the things we haven’t talked about yet is this incredible ecosystem with so many people building on and around Ethereum.

My personal opinion is that Eth is saved. If you look at Bitcoin, there's not a whole lot of innovation. Of course, the core developers have done some good work.

But now the bitcoin meme is, "No, we're not going to change anything because we're trying to be a reserve currency. We're trying to be digital gold, so we don't want to change anything. Everything is fixed, perfectly conceived, It's mostly correct as we make some adjustments so it's fine. We'll fix a few minor issues, but you can rely on it because it doesn't need changes. It's done the job and done very good."

I don't believe this is the ultimate goal of all blockchains. You can obviously do things with other blockchains, and in Eth, we're doing a lot more than that.

Even there, I noticed that there was an incentive mechanism around the token. When you create a blockchain, you create these tokens to regulate access within the network. Now, in theory you reward the people who work hard around the blockchain, you reward the miners who secure the blockchain or the stakeholders who secure the blockchain.

Rewarding developers is hard. I know that Zcash has a Founder's Reward, which is debatable. Satoshi Nakamoto owns 5% of the Bitcoin blockchain, and the Zcash founder's reward is 10% of the blockchain. There are also blockchains where 70%, 80%, 90% or even 99% will go to the original team and investors, these are the VC chains.

Blockchain's "free-rider effect"

So how do you incentivize people to build on someone else's blockchain? Because the incentives are becoming, "Well, this is a great blockchain, and it's open source. Let me fork it. Let me make a copy and run it myself." Or, I've seen game developers say: "I don't need Solana-level security. I'll just fork an existing blockchain and make it my own, and my own user running the game will also run the blockchain."

Developers have no incentive to build on other people's blockchains.

I got in trouble for saying this in 2017, but I stand by it: blockchain has a free-rider effect. There is a strong incentive to fork a chain and build your own instead of building on an existing one.

Innovation is slowest at Tier 1

Something fantastic happens on Eth, either by accident or on purpose, that makes Eth's innovation ecosystem possible. With ERC-20, people can start building their own tokens, and then there are these rollups and layers, where people build on top of Eth, and they can, in theory, issue their own tokens.

I will interpret this phenomenon as: Eth has always been the one with the slowest innovation, perhaps because it is the most technically difficult, and it insists on building on its own layer. The Ethereum Foundation is working on Layer 1 where they decide where sharding should happen and where Eth 2.0 should be built. This is the most backward part of the schedule.

And in terms of roll-up, Layer 2, ERC-20 and other assets built on top of Eth, things are moving very, very fast. I think the difference between the speed of progress may come from motivation. Have you ever wondered, "How do I incentivize people working on the first layer to move fast?" Maybe incentivize them to earn their own token somehow?

Vitalik: The Ethereum Foundation does have a bunch of Eth, and it uses Eth to pay people working on Layer 1.

A few months ago, we announced a client developer bounty where every team that builds software that understands and talks to the Ethereum protocol and can run a node gets a certain amount of Eth, which is denominated in the form of Eth Locked in a proof-of-stake system (POS), it is not yet fully connected to the rest of Ethereum. Ethereum had to fully switch to Proof of Stake in order for them to be able to withdraw this money. So the incentive is there.

Layer2 moves faster because it is permissionless

It doesn't even have that much to do with incentives. The application layer and Layer 2 develop faster because building on these layers is permissionless. You don't have to coordinate with anyone to build Layer 2. You don't have to coordinate with anyone to build the application.

However, if you want to change the Ethereum protocol, that is one of the most consensus-requiring things, you have to get a lot of people to agree. You have to get the whole community to accept protocol changes to layers.

What if we freeze Tier 1 today?

Naval: That's an interesting question. Imagine, let's say we freeze Layer1 today. You can make small changes like Bitcoin forks, but you can't make big changes. Layer 2 people continue to innovate without permission. They continue to build all their wallets and related technologies. But ETH is still in the proof of work, still in the Layer1 of that shard.

In this scenario, can Eth still be used? Can Layer 2 survive alone for a while?

Vitalik: Yes. But I don't think people will be happy about it, because people in Ethereum really like Proof of Stake (POS) and want to accept it as soon as possible.

Let me use some concrete numbers as an example, today Ethereum averages about 15 to 20 transactions per second. These are complex transactions. Many of these are far more complex than Bitcoin's. If you're just sending money, you can get up to 50 transactions per second with the current settings. But if we just move to Layer2, then we can handle about 5,000 transactions per second.

In fact, you are still using the same blockchain, but instead of using it directly, you use these additional protocols to package information and use the original blockchain in a different way. You're doing the same thing and still get the same security guarantees while using the blockchain more efficiently. There is more compression, and more computation is done off-chain via other protocols.

Hundreds of improvements could be made if Layer2 was done well, but it hasn't happened yet. Now, the Layer2s that exist today, they are far from perfect. There may be a 10x or even less improvement at the moment, not a 100x improvement. But roll-up technology is improving.

So if Layer1 doesn't change, if all we can do is more Layer2, we can handle up to 5,000 transactions per second. That must have been a pretty good ethereum.

Computation and data trade-off (data for computation trade-off)

Naval: What Layer2 executes is code. What about the data? Does the data still have to stay on the Layer1 blockchain?

Vitalik: The way roll-ups work is they execute code off-chain. So the execution of these encryption protocols is done off-chain, and then verified on-chain, which is much faster than the original calculation.

Data must be on-chain, but data can exist on-chain in a very compressed form. That is, instead of putting the transaction on-chain, you put the zip file of the transaction on-chain. It's like a tradeoff between compute and data. You have less data, but you have to do more calculations.

We can do more computation because we can really efficiently do more computation off-chain.

If you do the aggregation super efficiently, then you only need to put about 16 bytes on each transaction. Today, on average, transactions are around 100 to 200 bytes. So, 16 bytes on-chain, then decompression verification and computation happens off-chain. Apart from these tiny bits of data, everything happens off-chain.

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Blockchain throughput

Clarify how to compare blockchain competing products

Naval: Haseeb, you and your team recently did an analysis where you tried to look at the actual throughput of these different smart contract chains. But you haven't done the decentralized part yet, so obviously Eth looks to have the worst throughput because it's the most decentralized.

Let's also talk about how much of this is because of its legacy and how much is because Eth just chose to be the most decentralized.

Haseeb: Usually when people compare blockchains to competing products, they tend to choose the standard that makes them look good and generates a lot of data.

The most obvious way is to only benchmark the transaction TPS. Especially with many of these newer blockchains, they tend to benchmark transfers done in a testnet or done in a devnet environment where you can always get craziness that doesn't reflect reality huge numbers.

We see a lot of ridiculous claims about what kind of throughput blockchains can do, and we think, "Well, why don't we develop a clear and objective benchmark to verify what dimensions can be measured when comparing these blockchains? In terms of the common types of transactions that all blockchains do, apples-to-apples?"

The most common one is Uniswap-style AMM transactions, which is how almost all transactions are done in blockchains today. AMM, Automated Market Maker, is a very simple mathematical method of trading two assets.

Most of this you can simulate by looking at gas limits and block times, you don't have to do much. Some of these you have to verify empirically, because the way the gas is calculated doesn't give you enough information to verify that you can actually get it in the production of the blockchain.

We found that Ethereum can do about 10 transactions per second; Celo can do about 25; AVAX can do about 30, but its upper limit is much higher; Polygon can do about 50; BNB Chain can do about 200. Then Solana, which is known for processing thousands to tens of thousands of transactions per second, can handle about 280.

Pursue decentralization

In terms of Vitalik's previous point, part of the reason why Ethereum has performed so well is that Ethereum has achieved a certain degree of decentralization. As an institution, it is important that we ensure that anyone can access Ethereum from a laptop.

And most of these newer blockchains do not choose this. They chose different points in the range of decentralization performance. My point is that it is perfectly sensible for the blockchain to choose a different point on the tradeoff curve. It is very important to have Ethereum and Bitcoin, they have been going to the left.

Some would be wise to have blockchains tuned for different tradeoffs. But in tuning to the different tradeoffs, if you're not very decentralized, you'd better have real high performance.

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Adaptability of Ethereum

Tension Between Scalability and Preservation of Value

Naval: I think in this case, high-value applications will end up on Bitcoin and Ethereum, and the highest value application is money.

I'm curious, Vitalik, if you see long-term currencies as a use case for Eth.

Is Eth a token, is the Eth price a by-product of what you need to run the network, or is it a core value in itself and should be a store of value? Is it supposed to be a place where people can put their money in and forget about it for 10 years?

Vitalik: Ultimately this is a matter for the community to decide.

I think over time the community is making Eth more and more an important asset and maybe you can use Eth as a store of value. We can use Eth as currency, and you can use Eth for transactions.

Because, at the end of the day, it is a cryptocurrency. Its value is to some extent endorsed by all the activities that take place on the Ethereum chain. With EIP-1559, the majority of transaction fees for every transaction paid in Eth must be burned. Expect us to even have negative issuance once we have proof of stake. So Eth is quite unique in this context.

But for me, it's not either/or. Eth assets and the Ethereum application layer ecosystem are mutually synergistic. The stronger the application layer ecology, the stronger Eth; and the more Eth is an asset, the stronger the application layer ecosystem.

There will be multiple stores of value

Naval: People often compare Bitcoin to gold or the U.S. dollar as a store of value. But the world's largest store of value isn't even bitcoin and gold. They are factories, stocks, houses, real estate—actual productive assets. Oil is another, commodities and so on.

People store value in all sorts of weird places like art and NFTs. So it is absolutely possible that there are multiple ways of storing value. And what's more decentralized than having dozens of tokens that can be stored to run thousands, tens of thousands, or millions of assets that you can store? This is true decentralization.

You don't have a clear point on this, you mean "make the network work whatever the community wants." However, in "trying to welcome newcomers and new applications, be highly scalable, and let everyone Isn't there some tension between using your network, constantly innovating, changing, and trying new things" vs "preserving value for what's already there and preserving what's already established (vested interests)"?

There's an inherent tension there.

Vitalik: There was definitely some tension. But the benefits of the Ethereum ecosystem — its Layer 2 aspect, its diversity, the way the ecosystem has many sub-ecosystems — allow it to satisfy both in many cases.

If you just want to own your Eth and you want to hold your Eth, of course you can. There are even some ethereum applications that place almost as much emphasis on stability as ethereum itself, MakerDAO and certain suan might be a good example. But if you want to do crazy things, Ethereum lets you do crazy things too. If you need more scalability to do crazy stuff, then you can do crazy stuff on Roll-up.

So Ethereum, as an ecosystem, is really trying to help many different types of participants have a place in the ecosystem in this way, which is definitely a difficult thing to achieve. For many other blockchains that we know of, either adapt to digital rock (digital rock), or it is just a platform, no digital rock can make the whole system stable.

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protocol politics

The elder statesman of the smart contract blockchain

Haseeb: Vitalik, I want to ask you some questions about how your role has evolved since the inception of Ethereum. Earlier, you were a proud young entrepreneur. It's been six or seven years now, and you've gone from entrepreneur to chief technologist to politician. You are now a bit of a smart contract blockchain elder statesman.

What have you learned from protocol politics?

Vitalik: Protocol politics is not as different from conventional politics as you might think. That's all these emergent phenomena that happen when you bring thousands of people together.

In some cases your incentives will be aligned, in others there will be some competition. There are different groups, they have different opinions, and they have to fight and fight for their own interests, sometimes competing within an agreement, and sometimes competing between different agreements.

When people defend their views, the quasi-religious fervor is surprisingly familiar. Is it better to have a blockchain with smaller blocks that are easier to verify, or a blockchain with larger blocks so that more people can afford it?

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Ethereum community

Haseeb: It's a funny thing, your career is actually a tribute to Bitcoin maximalism (Bitcoin maximalism)

), but now you can actually see the rise of Ethereum maximalism (Ethereum maximalism

）。

Three or four years ago, it didn't seem to exist. It is now clear that with the emergence of alternatives to Ethereum, there is a strong need for people within Ethereum to separate their identities from everyone else.

So I'm curious how you think about keeping Ethereum healthy and not seeing the Ethereum community degrade culturally and religiously the way you see the Bitcoin community degrade.

Vitalik: I think one of the things I've learned over the last decade is that people are morally at their worst not out of greed, but out of fear. This is true in mainstream politics, and it is true in geopolitics as well.

Naval: Covid has shown that this is all driven by fear. The Russia-Ukraine crisis shows that Russia is not attacking Ukraine for its oil fields, it is out of fear. These responses are all fear-based. Fear is used to rationalize everything from the Patriot Act to Covid lockdowns. Fear drives everything.

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The DAO hack

Vitalik: Yes. Even when leaders are actually greedy and megalomaniac, fear is something they use to sell others.

I feel like the times when both the bitcoin and ethereum communities are morally at their worst is probably when bitcoin vs bitcoin cash, small blocks vs big blocks crisis, people feel like there is zero fight between these two visions And, either one or the other. A lot of principles were thrown out, and people behaved badly in a lot of ways.

Take Ethereum as an example, there is a large application called DAO, and DAO was hacked. A large portion of Eth is trapped in DAOs. Attackers will be able to take it out after a few months if nothing is done. And that’s less than a year after Ethereum’s history. Therefore, there is a resolution to make changes to the rules of the Ethereum protocol to rescue the users of the application.

And then there's this big debate. Some people thought it was fine because it was so early, some people thought it should be a principle that we never interfere, and it was better to stick to these principles from the beginning.

We ended up going with a hard fork to fix the DAO, but many people disagreed. Eventually, Ethereum split into two chains, Ethereum and Ethereum Classic. Ethereum Classic refuses to implement a hard fork, so they let attackers out of principle. Neither community was behaving in a very good way at the time. People have even publicly called for us to use trademark law to stop Ethereum Classic from existing.

Then there were calls for 51% attacks and all kinds of things. I think the reason people are embracing things that they wouldn't agree to at any other time is because they're afraid. People in the Ethereum community are worried that Ethereum Classic will replace and completely destroy Ethereum, and people in the Ethereum Classic community are worried that the principles they adhere to will be destroyed by Ethereum, so that they will replace the old version (Ethereum) that adheres to the principles.

The end result is fine with most people. Since then, Ethereum has not violated its principles again, which is more than many people expected. Many people believe that if you break a rule once, there will be countless more. But this is not the case, and people even want to create a "counter-precedent" (counter-precedent), insisting on fixing the Parity wallet after a year substantial financial loss). It shows that we really take this very seriously.

Naval: But just to be clear, the DAO hack was much bigger than anything that followed, right?

Vitalik: Yes, the problem of DAO is bigger and very unique, and it can be solved with a fork. Usually, when a hack occurs, the hacker gets the funds immediately and there is no way to fix it, even if you were willing to fork. So DAOs are really special and unique in this regard.

Vitalik's best and worst moments in protocol politics

Haseeb: As a protocol politician, what are your best and worst moments for blockchain statecraft?

Vitalik: Worst moment? Definitely the time the DAO forked. A lot of people did feel betrayed by the DAO fork. Many people do feel that their expectations have been violated. Many people feel that their opinions are not respected, especially those who are against the fork.

A lot of them feel that there is social pressure that if you are against a fork, then you are evil because you are a professional hacker stealing millions of dollars.

It’s an atmosphere that ends up turning off a lot of people, and there’s more we can do to improve it so people don’t feel excluded in the community despite the differences.

Haseed: Do you regret the decision at the time, or the way it was made?

Vitalik: I don't regret this decision. This decision did have a lot of positive consequences as well, it shows stake in the ground for a controversial issue. People's understanding of stake in the ground is also different.

My interpretation of stake in the ground is that it's a moral statement that you can trust principles without giving them infinite weight, rather than saying we're going to stick to them in all possible situations.

This moderation is very morally important to me personally. It's also very practical for me personally.

Most people who try to take a more pure approach end up in a situation that is extreme enough that they have to compromise. If you are so extreme that you never compromise, your posture will become even uglier. It's best to be transparent about these things early on. People who are pragmatic and willing to see things in a softer way, they end up being happier people.

There are some moderate line people who are actually against the DAO fork, but they are ultimately willing to use Ethereum despite the DAO fork.

But for many, the DAO fork was a watershed moment. Before that they were curious about Ethereum, and then they realized, "Oh no, it's a centralized evil chain." - Unfortunately, we can't please everyone, and it's expensive to please everyone Yes, it is very difficult to please everyone.

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Become a Twitter memelord

Naval: I see you have had serious slings and arrows on twitter, but you've been very nice about it. Zooko seems to be doing this too.

The protocol's non-anonymous leaders (or creators, since I'm not sure "leadership" is the right word for Ethereum), they often have the ability to be indifferent or combative in public with all this from the community doubts and pressures, and I don't think normal people can persist like this. how did you do that?

Do you wish you remained anonymous?

Did you have a learning process (learning curve)? You need to learn how to deal with all the haters attacking you and all the bitcoin fundamentalists? Would you like to disappear from Eth with the push of a button and Eth go into the hands of the Foundation?

Vitalik: There was definitely a learning curve. I've made big mistakes on twitter over the past few years, especially when I let myself get carried away in a particular discussion, I'll say something, I feel like I have to defend myself, I'm going into a deeper hole .

Naval: You wish you weren't arguing so much on Twitter. Is this what you want to express?

Vitalik: Yes. Over time, you learn that there is a good style. It is good style to accept criticism gracefully. You learn what to respond to, and you learn what to ignore because not many people actually see it.

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Vitalik's impact on Ethereum today

Naval: How much influence do you have on Eth today, especially compared to the time of the DAO fork? My sense is that in the DAO fork, you were very involved. If such a big thing happened today, how much influence do you have now compared to when you were at that time?

Vitalik: I feel like my influence on Ethereum is going down every six months. I am less than I was six months ago. Six months ago, I was less than I was a year ago. A year ago, I was less than I was 18 months ago.

Today, even I have to convince a large number of people to move in a certain direction. If you look at some of the EIPs I've personally promoted, some of them didn't even work out. So you have to work really hard to meet everyone's expectations.

Naval: So what's the biggest thing you pushed that didn't end up being adopted?

Vitalik: EIP-4488 is an example. If I have more control, it's already in Ethereum.

Naval: What's that?

Vitalik: This is a way to reduce the gas cost of call data in the short term. This is a fairly technical change that reduces roll-up costs in the short term.

Haseeb: In my opinion, your evolving role in Ethereum shows that blockchain is like religion.

Imagine Ethereum started out as a sect that you started as a charismatic leader and you were like, "Hey, we're going to break away from the religion of Bitcoin, or the religion of Mastercoin. I believe in some new principles like Turing Completeness."

Once upon a time, you were the leader of a sect, and as the sect became the church, there was more and more bureaucracy and more and more veto power. More and more mechanisms are being developed behind the scenes. Soon you may be the charismatic face of Ethereum, but the official leadership of Ethereum has taken on a life of its own.

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It's getting harder and harder to do big things in Eth

Vitalik: Today, protocol decisions tend to be done through this mechanism called all-core devs call. This is a phone call that happens every two weeks.

As the name suggests, all core developers go live and discuss all proposed protocol changes. Everything that people agree with will be accepted. If people don't agree, then it won't be accepted. Therefore, changes have to be made through this rather complex pipeline.

The first step is the ideation stage. Then the second step is the improvement stage. Then comes the stage of convincing more and more people, testing the implementation, and finally turning it into a fully formalized proposal, which we call an EIP, Ethereum Improvement Proposal. Finally, is sent to an all core devs, then if all core devs accept it, then it eventually goes into a hard fork, this is what we call an ethereum protocol upgrade, changes to the protocol need to be downloaded by everyone to be accepted by the network.

So it's a pretty long process. There are many different people in the middle who have to agree on a point of view.

Even at the beginning, the research team has to agree. Then at a later stage, the core developers, the people who actually write the code, have to agree as well. So it's definitely more likely to be vetoed than it was three years ago -- and certainly a lot more vetoed than it was six years ago, when we could accept the change and it would be incorporated very quickly.

Right now, I feel like the window for some important changes is closing. It's also getting harder and harder to do big things today.

Haseed: How do you feel about that?

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Goals Beyond Ethereum

Naval: If you weren't working on Eth, what would you be doing?

Vitalik: Good question. I'll make a long list of things that I think need to happen. I'll write about them and explain them, and probably implement them with some of my own money. I try to put the team together and make them happen.

It's going to be things like account security, social recovery wallets that we're talking about, ideas around privacy, some blockchain-based secure voting stuff that I've been pushing. What do we need to do to make possible this entire roadmap of how a trustless decentralized society works.

Naval: You already have. The aforementioned AMM (Automated Market Maker) used by Haseeb was an idea proposed in one of your blog posts and then implemented as Uniswap.

Any other ideas out there? Social Recovery Wallet, I've heard of it. Blockchain voting?

If you're a young hacker listening to this podcast, let's say you're not promoting Eth, but you're saying, "Hey, the world needs this. Someone should build it." What should they build?

Vitalik: Decentralized web clients are an important thing now - accessing the Ethereum blockchain this way is cheaper than running a full node, but needs to be decentralized and not dependent on version of the server. This will become more possible as Eth moves to Proof of Stake (POS). There are some people working on it now, but we can get more people working on it.

There are a few things at the application layer that might be useful. I've seen people working on decentralized VPNs, which is pretty cool.

Naval: Do you think the application of blockchain is driven by