Vitalik Buterin is co-creator of 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 this space today.

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EPISODE LINKS:
Vitalik blog: https://vitalik.ca
Ethereum whitepaper: http://bit.ly/3cVDTpj
Casper FFG (paper): http://bit.ly/2U6j7dJ
Quadratic funding (paper): http://bit.ly/3aUZ8Wd
Bitcoin whitepaper: https://bitcoin.org/bitcoin.pdf
Mastering Ethereum (book): https://amzn.to/2xEjWmE

OUTLINE:
0:00 - Introduction
4:43 - Satoshi Nakamoto
8:40 - Anonymity
11:31 - Open source project leadership
13:04 - What is money?
30:02 - Blockchain and cryptocurrency basics
46:51 - Ethereum
59:23 - Proof of work
1:02:12 - Ethereum 2.0
1:13:09 - Beautiful ideas in Ethereum
1:16:59 - Future of cryptocurrency
1:22:06 - Cryptocurrency resources and people to follow
1:24:28 - Role of governments
1:27:27 - Meeting Putin
1:29:41 - Large number of cryptocurrencies
1:32:49 - Mortality

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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 rate limiting your participation being your ability to crank out solutions to hash challenges.

The thing that really limits your participation is how much coins you're locking into this mechanism.

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 proof of work is even more of that kind of system.

I didn't mean it in that statement as a criticism.

That's equivalent, that 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.

Yeah, and just to that, maybe take a small tangent.

1 of the criticisms of cryptocurrencies, the fact that I guess for the proof of work mechanism,

you have to use so much energy in the world.

Is 1 of the motivations of Proof of Stake is to move away from this?

Is there like legitimately environmental impact from this?

So The latest thing was that Bitcoin consumed as much energy as the country of Austria or something like that.

And then Ethereum is like right now, only like half an order of magnitude smaller than Bitcoin.

of stake as the 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 2 big ones, 1 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 kind of very redundant and very secure.

How hard is that to implement and how hard is proof of stake to implement?

Like on a 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 charting 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 in 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 hasn't not yet been done

the networking layer in cryptocurrency is you're shouting, you're like broadcasting messages.

Yeah, you're shouting within smaller groups.

Smaller group, but you have like a bunch of subnetworks.

And you have to switch between, oh man, I'd love to see the, so it's a beautiful idea from a graph theoretic perspective, but just the software, like who's responsible?

Is the Ethereum project, like the people involved, would they be implementing?

Like, what's the actual, you know, this is like legit software engineering.

How do people collaborate, build that kind of project?

Is this like almost, Like, is there a software engineering lead?

Is there a legit, almost like large-scale open source project?

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 in fun places like Australia.

And so you just need a bunch of almost nonstop cat herding to just keep getting these people to talk to each other and kind of implement the spec, make sure that everyone agrees on what's going on and kind of how to interpret different things.

So how far into the future are we from these 2 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 phase 0 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?

Yes, they get to choose to move over if they want to.

Then phase 1 adds sharding, but it only adds sharding of data storage and not sharding of computation.

And then after that, there is the merger phase, which is where the accounts, smart contracts, all of the activity on the existing ETH1 system just 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 0 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 4 months away from launch.

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 0 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 0, I don't expect too many people to do much because in phase 0 and phase 1, the new chain, they get it deliberately and if 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 1.

And then when the merger happens, then the merger is a operation that happens all at once.

So that's kind of 1 of the benefits of a consensus system that like on the 1 hand, you have to coordinate the upgrade, but on the other hand, the upgrade can be coordinated.

Casper FFG is the consensus algorithm that we are using for the proof of stake.

Is there something interesting, specific about Casper FFG?

Like some beautiful aspect of it that's worth mentioning.

So Casper FFG combines together kind of 2 different schools of consensus algorithm design.

So the general 2 different schools of the design are, right, 1 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 of a 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 like 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.

That's fascinating how you would make that happen.

If you just search like archive, as in like A-R-X-I-V, Casper FFG, it's right there.

That's an archive, the paper's an archive.

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 a tradition started with Satoshi Nakamoto?

What do you make of the future of that kind of sharing of ideas?

And it's definitely something that's kind of mandatory for crypto because 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 how a 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 just ideas in a form that's kind of half formal, like it's halfway in between.

It's a kind of a text write-up and you can have math in it, but it's often much shorter than a paper.

It turns out that the great majority of new ideas are just fairly small nuggets that you can explain in 5 to 10 lines.

They don't need the whole formality of a paper.

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 just Casper FFG is just kind of combines together these 2 schools.

And so basically it creates this system where if you have more than 50% that are honest, and you have network synchrony, then the thing kind of goes as a chain.

But then if network synchrony fails, then the last few blocks in the chain might get replaced.

But anything that was finalized by this more asynchronous process can't be reverted.

And So you essentially get a kind of best of both worlds between those 2 models.

I'm going to be reading the Casper FFG paper.

I 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.

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 1 of those things that's up there.

I think 1 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 1 really fun example of this is there was this kind of game on Ethereum called CryptoKitties, the just involvement of breeding digital cats.

And someone else created a game called Crypto Dragons, where the way you play Crypto Dragons is you have a dragon and you have to feed it crypto kitties.

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 didn't 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.

And so you could see it scaling to just outside of dragons and kitties.

You could build entire ecosystems of software.

Yeah, I mean, especially in the decentralized finance space that's been popping up in the last 2 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?

So this is a kind of tokens that retain value equal to $1, but they're kind of backed by a cryptocurrency.

So as far as decentralized exchanges go, there's this really interesting construction that has existed for about 1 and a half years now called Uniswap.

So what Uniswap is, it's a smart contract that holds the balances of 2 tokens.

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 is at the current points on the curve, and it is the price.

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, the fundamental, the, the, the distributed application infrastructure allows that somehow.

This is all a computer program that's just running on Ethereum.

Smart contracts too are just fascinating.

Do you think cryptocurrency may become the main currency in the world 1 day?

So what 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.

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.

But I also expect that if cryptocurrency is 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 some very high inflation place like Venezuela, for example, or if your country just kind of gets cut off from other financial systems because of something the banks do.

If there's even some major trade disruption or something worse happens, then 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 the centralized control by governments of currency is limiting somehow, maybe my naive utopian view of the world.

It's, I mean, it's definitely very possible.

I mean, I think for cryptocurrencies being the main form of value to work well, 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 crypto, cryptocurrency is to 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 this just being the early days?

10 years is nothing in the history of money.

And I think it's a combination of 2 things, right?

1 is it's still early days, but the other is a kind of more durable any kind of economic problem, which is that demand for currency is volatile, right?

Because of recessions, booms, changes to technology, lots of things, and if people's demand for how much currency they want to 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 the kind of prices of things that are 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 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.

What's the idea, and Ethereum doesn't, but can you clarify just in the comments you just made, does Ethereum qualify to the kind of currency that you're talking about and being flexible in the supply?

It's a bit more flexible, but the thing that you would really want is something that's specifically flexible in response to how valuable the currency is.

And I'd recommend you look at stable coins as well.

It's a type of cryptocurrency that's issued by a smart contract, 1 of these Ethereum computer programs, where the smart contract holds a bunch of ether, and then it basically, that people deposit, and then it issues DAI, and the reason why people deposit is because they want to go high leverage on their Ether.

And so it pairs these 2 sets of users, 1 that wants stability and 1 that wants extra risk together with each other.

And it basically creates or gives 1 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 the $1 rate.

And it has some kind of stabilizing network effects.

Yeah, it has many kinds of stabilizing mechanisms in it.

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 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, you know, 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 Kratz, Danny Justin, and the other people.

And then of the academic cryptographers, before this today, I was at Stanford.

And Stanford has the Center for Blockchain Research and Dan Bonet, a really famous and great cryptographer is running it.

And there's people working on zero-knowledge proofs, for example.

And Zuko from Zcash is 1 other person that I respect.

start with the Ethereum group and then look at the academics, Daybonet and so on, and then just cautiously expand the network of people you follow.

too self-promotional, then just like remove them.

Is there books that are, There's these white papers and we just discussed

about ideas being condescent to really small parts.

Is there books that are emerging that are kind of good introductory material?

So for historical ones, there's like Nathaniel Popper's Digital Gold, which is just about the history of Bitcoin.

There's 1, and then Matthew Leising announced that there's 1 about the history of Ethereum.

For technical ones, there's Andrea Santanopoulos' mastering of Ethereum.

So let me ask you, 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,

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Vitalik Buterin: Ethereum, Cryptocurrency, and the Future of Money | Lex Fridman Podcast #80