Please enjoy this transcript of my conversation with Vitalik Buterin and Naval Ravikant.
Vitalik Buterin (@VitalikButerin) is the creator of Ethereum. He first discovered blockchain and cryptocurrency technologies through Bitcoin in 2011 and was immediately excited by the technology and its potential. He co-founded Bitcoin Magazine in September 2011, and after two and a half years of looking at what the existing blockchain technology and applications had to offer, wrote the Ethereum white paper in November of 2013. He now leads Ethereum’s research team, working on future versions of the Ethereum protocol. In 2014, Vitalik was a recipient of the two-year Thiel Fellowship, tech billionaire Peter Thiel’s project that awards $100,000 to 20 promising innovators under 20 so they can pursue their inventions in lieu of a post-secondary institution path. You can find his website at Vitalik.ca.
Naval Ravikant (@naval) is the co-founder and chairman of AngelList. He is an angel investor and has invested in more than 100 companies, including many mega-successes, such as Twitter, Uber, Notion, Opendoor, Postmates, and Wish. You can subscribe to Naval, his podcast on wealth and happiness, on Apple Podcasts, Spotify, Overcast, or wherever you get your podcasts. You can also find his blog at nav.al.
Transcripts may contain a few typos. With some episodes lasting 2+ hours, it can be difficult to catch minor errors. Enjoy!
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Naval Ravikant: Tim, this is Naval speaking. Tim, thanks for having us. We’re joined by Vitalik Buterin. Vitalik is the — I believe now 27 year-old creator of Ethereum, which is the most exciting cryptocurrency since Bitcoin, and has incredibly broad ambitions and capabilities. Vitalik is a really interesting guy because not only did he create Ethereum or co-create it, he also is a multidisciplinary polymath. His blog at vitalik.ca is full of lots of great ideas and insights and thoughts. He runs the Ethereum Foundation. He’s contributed to all kinds of things like automatic market-makers, roll-ups, social recovery wallets, decentralized finance, scalability of blockchains, governance, all kinds of great ideas in the cryptocurrency space. He also thinks a lot about public goods, radical markets, wealth distribution. He runs a very active Twitter account where he good-naturedly engages with all kinds of people who are constantly trying to get into fights with him, which is what people do on Twitter. And yeah, and we’re very lucky to have him.
I would say that, for me, along with Nick Szabo, who we interviewed here in 2017, who created BitGold and coined the term smart contracts, and along with Zooko, who is the irrepressible founder of Zcash, I’ve always found Vitalik, Nick, and Zooko to be the three people on Twitter that I early on learned a lot about crypto from.
So, welcome, Vitalik, and thanks for taking the time to talk to us about yourself and Ethereum.
Vitalik Buterin: Thank you very much for the introduction, Naval. It’s good to be here.
Naval Ravikant: Yeah. So, I’m going to start just right off the bat, we’re probably going to try and keep this fairly basic and high level. For those of you who are quite experienced with cryptocurrencies, this may be a very general conversation, but at the same time, I’m going to ask Vitalik some hard questions. We’re not going to let him get away with just the PR angle.
But we’ll start with some basics. Let’s assume we know what cryptocurrencies are. And for those of you who are not that familiar with it, I would suggest you go back to the podcast that Tim and I did with Nick Szabo back in 2017. I believe that’s titled The Quiet Master of Cryptocurrency.
Tim Ferriss: Correct.
Naval Ravikant: So once you’re up to speed on that, this one will make a lot more sense, but we’re going to get right into, not what is crypto or what is Bitcoin, we’re going to get into what is Ethereum. So, how do you describe it today, Vitalik?
Vitalik Buterin: Sure. So the one-sentence explanation of Ethereum that I sometimes give is it’s a general-purpose blockchain. So this, of course, makes more sense if you already know what a blockchain is. Right? It’s this decentralized network of many different computers that are together maintaining this kind of ledger or let’s say database together. And different participants have very particular ways of plugging into that. They can sense transactions that do very particular things, but no one can tamper with the system in a way that’s outside of the rules.
And Ethereum expands on the Bitcoin approach, basically saying, well, instead of having rules that are designed around supporting one application, we’re going to make something more general purpose where people can just build their own applications and the rules for whatever applications they built can be executed, implemented on the Ethereum platform.
So one explanation that I heard one person give is that Bitcoin is like a spreadsheet where everyone only controls their own five squares of the spreadsheet, but Ethereum is a spreadsheet with macros. So everyone controls their own accounts, which is their own little piece of this universe, but then these pieces of the universe can have code and they can interact with each other, according to pre-programmed rules. And you can build a lot of things on top of that like Bitcoin builds a monetary system on top, famously Ethereum can build decentralized domain name systems, again, various decentralized financial contraptions, prediction markets, non fungible tokens, and all different schemes that people have been coming up with.
The limit for what you build is basically your own creativity, but the core difference between building an application on Ethereum versus building it on some traditional centralized platform is this core idea that once you build your application, the application does not need to depend on you or any other single person for its continued existence. And the application is guaranteed to continue running according to the rules that were specified and you do not have any ability to irregularly go in and tamper with it.
Naval Ravikant: That’s a great overview. And I liked that Excel analogy of it’s a spreadsheet with macros instead of a spreadsheet where you control your own cells. I’ll also try and articulate in a few ways that I understand it, around the edges, because I think Ethereum is one of those things that’s now quite a bit bigger than you. It probably has evolved in ways that even you didn’t fully anticipate. So in some sense, we’re discovering Ethereum and no longer just building it.
I also like to think of it as an unstoppable application platform. So a platform for building unstoppable applications, like a world computer where let’s say that we want to run very, very important computer programs where we don’t trust the computer itself and we don’t trust the other people to execute code on our behalf. Then we create a single world computer where we check the code on the machines of many, many different people all around the world who are properly incentivized to maintain a single computing state.
So if Bitcoin is a shared ledger, then Ethereum is a shared computer for the entire world to run its most important applications. So some of the applications that people are building on it are among possibly the most important applications of the future. So let’s talk a little bit about those applications, about what this trustless world computer is doing. What are the applications today that are the most common and that you’re most excited about?
Vitalik Buterin: So, first of all, I think ETH, the asset, is a cryptocurrency and in itself is an application and the first application of Ethereum. Going beyond financial things a bit, I mentioned ENS, the Ethereum Name System. So ENS, you can think of it as a decentralized name system. For example, when you go to ethereum.org, there is DNS, Domain Name System which has this big table that maintains this mapping of, well, if a person enters, if you’re on .com the server, they actually have to talk to it, to talk to the website like some particular IP address. And this DNS system that maintains this public relationship is a fairly centralized system with a very small number of servers running it. So ENS is a fully decentralized alternative that is running on the Ethereum blockchain.
And you could use it not just for websites, right? Like you can use it just for accounts. So for example, there was a messaging service called Status. In terms of what it feels like to use it, it’s a messenger, it’s similar to Telegram or Signal or WhatsApp or any of those, but the difference is that it is decentralized. And so there is no dependence on any single server or like there’s still a dependence on Status, the company, which is nice because it makes the whole thing much more censorship-resistant. It makes the whole thing just a much more guaranteed to survive regardless of what forces wish for its existence or wish against its existence in the future. And the like ENS, this is really an important part of it because, well, if you have a chat application, I need to have sub name by which I can refer to — like the users that I want to talk to. Right?
Like I wanted, so I could type in and say, I wanted to talk to the Naval and things like Telegram and Signal and WhatsApp, that mapping is generally like basically authenticated and controlled by a server. But whereas in Status, it’s all just done by the Ethereum blockchain. Right. So, that is one good example. I think of it like not financial, but still very important if you’re in an application. Now going beyond those two cases, there is a lot of more complicated things. So there is the DeFi, decentralized finance space, which is this big category that has all sorts of interesting contraptions in it. So for example, there is a prediction market. So a platform for where you can go in bet on different outcomes like who is going to win some sports game or who is going to win some particular election.
And there have been very successful prediction markets running on the Ethereum blockchain. There’s just the markets for trading between different kinds of assets. There’s what’s called synthetic assets. So, if you want to have access to some mainstream real-world asset like it’s all, or it could be one example, but you don’t have to tell us. There’s lots of other examples as well. There are versions of this that are purely virtual sort of simulated versions that exist purely within the Ethereum environments. So now there’s this entire kind of a very powerful financial tool kit that exists within the Ethereum ecosystem. On the whole, there’s just a lot of these interesting things that happen. I mean, there’s even games that are based on Ethereum. There’s a whole bunch of different things.
Naval Ravikant: Yeah. And DeFi, decentralized finance is this gigantic new category in which entire companies and protocols are being built in a decentralized way that allow you to do a lot of things that would have required Wall Street, along with bankers and judges and lawyers and accountants to handle. But now is done through smart contracts that are living on the Ethereum blockchain. And these smart contracts are at the core of the Ethereum blockchain. And we talked about these in the Nick Szabo podcast, but he famously described it as like an automated vending machine is an example of a smart contract where you put in money in a certain slot, and there’s a certain set of rules and you press certain buttons and you get certain products in exchange. But these smart contracts, obviously now are getting far, far more complicated can actually be used, not just to compose financial applications, but even applications that we don’t normally think of as financial.
One way to think about it, for those of you who are into computer programming, is imagine if every piece of a program, every function had an address from which anyone in the world could reach it, a unique identifier address. And it had a slot into which you could insert money. So you could call any function wherever it is in the world. You could insert money into it and it would do something on your behalf. And so that gives Ethereum applications this very interesting property called composability, where you can use them almost like LEGO blocks, each one builds on the rest. And so the final product in DeFi ends up very, very advanced. In the traditional world when let’s say like Robinhood builds their application and then Schwab builds another application and Wisdom Tree builds a mutual fund or an ETF. Those can’t combine with each other, but in the Ethereum world of DeFi, all of these apps by default are open source, permissionless, programmable, and can connect right into each other.
They can be identified, called, and paid for in a permissionless, trustless kind of way. So the infrastructure that gets built in DeFi and Ethereum, although it’s very difficult to build, and it’s complex, once a piece is built, it is available to everybody and stacks onto each other almost to create one of those Japanese-style Voltron robots that just gains in power. Yeah.
Tim Ferriss: May I? Naval let me jump in here just as a proxy. I’m not even a proxy. I am a listener literally in this case and I’m happy to be the listener. So I’m both a proxy and an actual listener, but how does one think about intellectual property, if all of these otherwise separate or previously separate applications and so on are now LEGO pieces that are natively interconnected? Is that a silly question? I’m just wondering if —
Naval Ravikant: No, it’s a really good question. I mean, my high-level view on it is that what blockchains do is through consensus, they protect the data. So the users own their own private data and then the public data that’s needed to make the blockchain work. It’s integrity is protected by the blockchain and that’s what blockchains do. They get a whole bunch of people to cooperate on what the canonical output should be. But the code itself is completely open. It is kind of backwards to what we’re used to. We’re used to closed source companies capturing value, but here all the value is created by open source. But yeah, Vitalik I’m sure has a different view on this, but there’s lots of copycats and clones and there’s attacks and forks and so on. And it’s a wild west out there, but generally so far, it does seem like the original products and the best products are succeeding the best. And they’re always in the scoreboard of market cap and transactions and usage, but yeah, it’s a wild west out there.
Vitalik Buterin: Yeah, I know and I think like the blockchain environment is definitely one that operates under somewhat different rules than the traditional environments, right? Like just one example of this is the idea of forking, right? So the one story that happens at around the beginning of last year that I just love to tell because of how it combines together with the values of the space so nicely is there was this platform called Steem and In Steem, there is Steem the platform and then there’s Steem, the company, right? And Steem was its own blockchain and Steem, the company, they did have some Steemit tokens, but they didn’t have the right to just do whatever they want with this Steem of the platform because it was a decentralized thing, but they had some tokens and then Steem, the platform had a voting mechanism as holders of Steem tokens could vote on changes.
But then the Steem, the company, got bought out by Justin Sun, the infamous Tron person and Justin Sun, like basically started to do some things to increase his control over the Steem platform. The community was very unhappy with him. And then he even took advantage of some of the voting mechanisms and some coins held at exchanges to seize control of at least the formal rules of the platform even further. But then what happened was that the users rebelled, right? What the users said is, “Well we’re creating a new platform called Hive and Hive is just a fork of Steem, it is going to have a start with the same — or mostly the same rules as Steem. And we’re either going to copy over most of the balances of the Steem tokens, except if you participated in the attack, then your balance goes to zero within the new fork.
And most of the users basically collectively just moved over to this new fork. And Justin Sun had this full control of an empire, but then nobody cared about that empire anymore because everyone now cared about Hive, right? So like forking is this [inaudible] that exists. And because of it you do have this ability for just community is to exert collective agency and basically protect themselves from being exploited. But at the same time, if you, as a project team are good to your community, then like those same effects work in your favor, right? So those effects work in your favor because a community is willing to support your project. If someone makes a copycat, then generally very few people are willing to support and provide any assistance to that copycat project unless of course you do something to betray the community’s trust, in which case you know that — like those kinds of situations are the situations that the copycat is for.
So I think legitimate developers have plenty of ability to build projects to gain from those projects becoming successful. And there’s a lot of ways in which the crypto space does end up assuring that. But at the same time, it’s also not in environments where anyone’s level of control is infinite. And in some ways, that’s the other beautiful thing about the space.
Naval Ravikant: Yeah. Vitalik had this great line in his blog, where he said we wanted digital nations but we got digital nationalism. And there’s a lot of truth in that. But basically these are like digital nations. And one of the analogies that I use for DeFi is that these are like crypto castles made of math that are freely trading with each other. Just imagine people are building applications on top of Ethereum, they’re protected by mathematics, those are the walls and those castles and their moats, which are rivers of cryptography. But then they have free trade policy with each other. So that creates a lot of innovation, but if one of them starts misbehaving, then its people can leave and go to the next crypto castle or this is where the analogy breaks down. They can actually replicate it, just create a copy and move to that one, like in the Steem and Hive example.
Tim Ferriss: Well that also is — I mean, it has comparables outside of the world of blockchain and cryptography in so much as if we look at, say WordPress as an open source project, you have companies like Automattic and Matt Mullenweg. And people may notice that M A T T in the middle of Automattic, which layers then these for-profit services on top of an open source platform. And technically someone could create a competitor, but like you said, there are these questions of viability, value add, and moral leadership and so on. Right. So, there are certain elements that contribute to the Ethereum ecosystem, so to speak that you can perhaps compare to other things, to help educate people as well. I was just sort of connecting some of those dots.
Naval Ravikant: Yeah, well, that’s a good analogy with WordPress. The place where the analogies diverge is that WordPress is a single-player game. Like each person owns their own blog, whereas in Ethereum world you could use Ethereum to build a Twitter that everybody owns, and it requires social consensus to operate, but multiple people can put their data in. So it’s this really weird thing where it’s decentralized, it’s open source, but it’s still used to coordinate and bring people together. Blockchains combine this really weird combo of individualism and individual control and the ability to leave along with consensus and community and cooperation and build this giant public good. So it is its own thing. It’s hard to figure out, but it’s worth figuring out because this is the next phase of the internet after mobile.
Tim Ferriss: Yeah. Let me — if I could jump in just to be the kid in the back of the class, asking questions. I would love to hear from you Vitalik, what was the initial vision for Ethereum? And what has most surprised you, if anything. I was doing a bit of reading just on the genesis story. And first of all, I mean maybe separately, maybe for another conversation, it seems like a lot was done right in the beginning. And I was reading a quote from a Wired piece in 2016 and please feel free to fact check if it’s not accurate, but it says, “When I came up with Ethereum, my first first thought was, okay this thing is too good to be true and I’m going to have five professional cryptographers raining down on me and telling me how stupid I am for not seeing a bunch of very obvious flaws, but … two weeks later I was extremely surprised that none of that happened. As it turned out, the core Ethereum idea was good, fundamentally, completely, sound.”
So I’d love to hear what the core idea was. Maybe we’ve already stated it and it’s redundant, but the initial vision, and if anything has been really surprising to you that has transpired since those early days.
Vitalik Buterin: So I think the core idea is to make a general purpose blockchain, and to open the gates for people to build what they want to build on top of it, right? Like the background story for when Ethereum was starting to be formed, was that this was just the time when the idea of a blockchain beyond Bitcoin was just starting to gain legitimacy. And people were just starting to realize that there are these applications for blockchains other than just running a currency and in the end would be nice to build a platform that can actually support them. And so at the beginning, right, you had single purpose blockchains, you had Bitcoin for currency, you had Namecoin for domain names. You would have like single purpose protocols, like colored coins for issuing assets.
The second step is what I call the Swiss Army knife protocols. So a Swiss Army knife protocol basically says, well, here’s a list of 25 different applications that we’ve identified as being important and let’s build a blockchain to support all of them. So like Mastercoin was one example of what I call the Swiss Army knife protocol. And the problem with Swiss Army knife protocol is that two weeks later, some 14-year-old teenager in Finland comes up with a 26th application and then you have to go hard-fork the protocol. So the next natural step is this general purpose approach, where instead, if you are a blockchain supporting 25 applications, your blockchain supports a programming language and whatever system with whatever rules you want to build, you write that in a piece of code and the nodes in the network can all execute the code.
And so the network kind of helps to collaboratively enforce the rules of this code for the objects that are in your particular application. So that was the technical perspective. And then there was also the perspective of, well what did I envision people building on top of it? It’s actually surprising how it hasn’t changed that much. I remember some of the very earliest applications included financial gadgets. So contracts for difference, for one example of which is one very particular subset of the thing that today we call it DeFi, decentralized file storage like pay people to store a gigabyte of your data was one thing I was excited about. Decentralized name systems, was excited about those decentralized trading between different assets. A lot of the examples of just things that people wanted to do in the — or with blockchains at the time like they are just the same as what people are doing today, though there are also new applications, right? So like non fungible tokens that I briefly mentioned NFTs. The idea here is basically you just create a token that represents something other than a financial asset.
One example of this could be that an NFT can represent video game assets and NFT could represent like a digital work of art where you want to sell like basically bragging rights as being the original owner of it. And there’s a lot of these different use cases. And these right now, the NFT ecosystem has been extremely successful. About a week ago, there was a Nyan cat NFT that got sold for the equivalent of about $580,000. And so that’s an example of a new thing. Another example of an old thing is that DAOs, decentralized autonomous organizations. And so the idea here is, well, let’s build an organization where the rules for the decision-making in that organization, the equivalent of shareholder or a board voting or whatever he wants to use, get just be written as rules in a smart contract.
And then the program that executes those rules can be directly in control of whatever assets the organization is supposed to control. And we’ve seen a couple of examples of simple DAOs in action. MakerDAO, which maintains, DAI, the stable coin that algorithmically targets a price of $1 is one example. Now there’s also RAI. There’s a lot of examples of this. So, a lot of things that we expected from the beginning. Prediction markets, some also have been part of what we were excited about using blockchains for since 2014 and they’re still around today. So a lot of old things and also some new things as well.
Tim Ferriss: Thank you. Extremely helpful.
Naval Ravikant: Yeah. I mean, yeah some of the ones that Vitalik just laid out, like I think your recent guest Katie Haun mentioned NFTs as Nifties, is what she called it.
Tim Ferriss: Oh, no I did because I wanted to try to force that into the lexicon!
Naval Ravikant: Got it! Okay. Well, you won. It stuck. So Nifties are this crazy idea that like owning a digital copy of something and having your name stamp to it somehow gives it more value, but it seems to work. It works with collectible trading cards. It seems to work with digital art. And then because of the composability of the Ethereum infrastructure, you can reuse these Nifty items across different games, different museums, different virtual worlds. And so you own it in one place and you own it everywhere, which is a very powerful concept. So digital scarcity was born with Bitcoin, but now extending into things that are not fungible that are not exchangeable with each other.
And that’s been, frankly, for me, a surprising thing that has emerged in Ethereum. Ethereum, it’s funny because you’re asking Vitalik, like what did he expect and what did he not expect? I remember when Ethereum first launched that a lot of computer scientists I spoke with privately said it would never work because it’s this crazy idea that the way we’re going to get a trusted computer in the cloud is we will each run a copy of all the computations on all of our computers and then we’ll sync it up and make sure it matches. So that’s the recipe for building the slowest computer in the world. But somehow we’ve gotten away with it. And so I think the big debate now about Ethereum has shifted from will it work to will it scale. And when I talked to my friends in the crypto community and say, “Hey, what do you want me to ask Vitalik?”
They send me a list of many, many questions, but the center piece is always the same. And like, how the heck is this thing going to scale? And I would like to get in that conversation, that is a more complicated conversation. It is technically sophisticated, but basically we’re saying, “Hey, we’re going to have one giant mainframe computer in the cloud, running everyone’s applications so that we can all trust the computer instead of trusting each other.” But how is that going to scale? Isn’t that going to be the slowest computer of all time? And so now we’re in a situation where Ethereum it’s actually cleverly named, it runs on so-called “gas” and there is a limited amount of gas per block in the Ethereum blockchain.
And frankly, the gas, the price of gas has gone up. These decentralized finance applications, they can be very lucrative. They’re trading large amounts of money and people are eager to use them, but the price of each of these transactions is going up. I was trying to do a small DeFi transaction the other day, and it was a hundred dollar transaction and the price was $25 just to execute the transaction. And that’s a very, very high transaction fee.
And I know Vitalik’s crew have been working for years on the Ethereum 2 project to bring that cost down. By the way, as an aside, that is one place where Ethereum really differs from Bitcoin. Bitcoin is saying we’re digital gold, this thing is immutable, don’t change it. And the fights in the past have been about changing, Bitcoin or not, there was a big famous schism over that. But now with Ethereum, the question is — the philosophy is we do change it. We do improve it. We do make it better, but in the process, there is a greater chance that things can go wrong, that it can break. So now we’re entering Ethereum 2, which is the scalable version of Ethereum. So Vitalik, you want to give us a quick overview of Ethereum 2 at a very high level, and then we can dig into the pieces.
Vitalik Buterin: Sure. So I think one other thing that’s important to add just to give a complete picture of scaling is that there’s these two families of scaling, layer 1 scaling and layer 2 scaling, where layer 1 scaling basically says, well, let’s make the blockchain itself better. And the layer 2 scaling says, well, let’s come up with protocols that sit on top of the blockchain and that use the blockchain in more clever ways to provide the same kinds of security guarantees that a blockchain has, but that provide a much more scalability because you’re not just kind of doubly sticking like literally everything and doing everything on a blockchain directly. And so like, Bitcoin, for example, especially after the scaling war is focused exclusively on layer 2, right? Whereas, like say Bitcoin Cash is very layer 1 focused.So —
So basically the idea here is decentralize only what you need to decentralize. And so Ethereum is going to split into, or it’s going to have multiple layers. And I think what you’re saying is layer 1 is really Ethereum and that’s the least scalable part, but that’s where the security comes in. And layer 2 is where the code is run. And that has different properties which you’re going to get into.
Vitalik Buterin: Right. Well, the way that I would describe it is like in comparison to Bitcoin, which is very layer 2 focused and Bitcoin Cash, which is very layer 1 focused. Ethereum takes a moderate approach. So we do both kinds of scaling, right? So there is the Eth2 effort, which you mentioned, which — it is layer 1 scaling, right? Is basically saying well we’re going to make this big upgrade of the Ethereum blockchain, and we’re going to move it from a proof-of-work to a proof-of-stake where proof-of-work is this current consensus mechanism that keeps the blockchain secure, that broadens on having a large number of computers, just constantly cranking out these kind of mathematical hash solutions and it’s 24/7 and proof-of-stake is a much more energy efficient alternative.
There’s also sharding, which is a layer 1 scaling solution that says that instead of every node in the network having to download and process everything, every node in the network only has to download and process a small portion of all of the data. And the blockchain protocol is designed in a clever way that still ensures sign of safety despite having that constraint. So think of it as combining at least some of the advantages of a Bitcoin-style blockchain in BitTorrent. BitTorrent is very layer 1 scaled. Like there is there’s nobody who downloads every movie or even like an index of every movie.
Naval Ravikant: Yeah. So before we get to layer 2 so layer 1 is, you’re saying is proof-of-stake, which is moving from proof-of-work to proof-of-stake and sharding, which is breaking it into pieces and having different pieces do different things, and then try to reconcile them. On the proof-of-stake side, I mean that itself is a whole big debate that could take up the entire podcast.
Tim Ferriss: So the proof-of-work I’m familiar with, proof-of-stake, could we just define what that means?
Vitalik Buterin: The core idea basically is that in any decentralized consensus system where you don’t have a central registry that keeps track of who the different humans are, you need some way for people to basically vote on which blocks got and which transactions got included in the network. And you need for that vote to be secure against what’s called a sybil attack. A sybil attack is when one attacker just pretends to have one million different accounts. And normally in Reddit and Google accounts and Twitter and all of these centralized systems, this is done using centralized mechanisms, right? They sometimes require a phone number verification and then phone numbers themselves often end up having some KYC on top of them. There is various AI techniques to try to detect bots, but in a decentralized system, we don’t have this set of centralized registry of who gets to be an actual user.
And we don’t want to have that. And so to prevent this sybil attack, right? To prevent one person from just generating a billion accounts and outvoting everyone else, the solution is economics, right? The solution is basically that the extent to which you can vote on just this very limited question of which transactions get included in what order, is proportional to how many economic resources you put in. So in the case of proof-of-work, those economic resources come in the form of computing and hardware that you’re running, right? When you’re running this mining software on your computer, you’re cranking out these hash solutions. Every hash solution gives you the right to generate a block. And the number of hash solutions that you can generate is proportional to how many computers you put in. In proof-of-stake, it works a little differently, but the core principle is that your ability to participate in creating the outcome is proportional to how many coins that are in the system that you’re staking.
And so the reason why proof-of-stake is efficient is because in proof-of-work, the way that you basically prove that you have a computer to the system is by just running the software on that computer 24/7 and generating half solutions, right? That’s the only way to safely do it, because if you did not have to run the computer 24/7, if you only have to run it 12/7, well, then you could have one computer that just pretends to be two different computers. But with proof-of-stake, if you have coins, those coins are saved in an account. That account has an associated public and private key and you can just make a digital signature with the private key. So you don’t have to run any computer for longer than a few milliseconds. And that’s the core principle.
Tim Ferriss: Yeah. I will say this is extremely helpful. Thank you.
Naval Ravikant: Yeah. This is beyond the scope of this podcast, but it is actually hotly debated how much more efficient proof-of-stake is because there’s also, these blockchains, they have to issue coins in exchange for the security to the so-called miners or validators in the case of proof-of-stake, and people will spend a dollar to get a dollar, so to speak. If you’re giving out free coins on the blockchain, and then people are going to hustle in any which way possible. And in proof-of-work, they’ll do it by buying more computing equipment to run more hashes, to get the new coins coming out. In proof-of-stake, they’ll have to lock up funds or they’ll have to obtain funds to do it and there’s a cost to doing that, to obtaining those funds. So there’s no real free lunch, but there are arguments for efficiency with proof-of-stake, especially as you get to securing very large amounts. So in any case —
Vitalik Buterin: Yeah, the way that I would just briefly summarize the proof-of-stake case there is that proof-of-stake can actually survive at least in the opinion of proof-of-stake supporters with much lower rewards than a proof-of-work can. And the reason is, and because of how proof-of-stake works, the ratio between the cost of attacking a system and the cost of just running it becomes more favorable. But this is a long debate. I’ve written on it. I have a post on vitalik.ca, but if you just scroll down to the most recent one called Proof-of-Stake and then proof-of-work proponents have their own posts as well. So I encourage you to read all of them.
Naval Ravikant: So going back to, this is all layer 1 scaling, switch from proof-of-work to proof-of-stake, start sharding the blockchain, and this gets you some tens of times improvement, like 20 times, 25 times improvement —
Vitalik Buterin: 100 times.
Naval Ravikant: 100 times. Fantastic. So then there’s layer 2, which stacks on top.
Vitalik Buterin: Yes. So layer 2, as I mentioned is about creating protocols that we have on top of the blockchain, that only use the blockchain in very particular ways. So there’s lots of techniques for this, right? The simplest layer 2, to explain, I think is a very special purpose layer 2 called a payment channel. So the idea behind a payment channel is, let’s say, I am selling you, Naval, an Internet connection and you’re paying me per megabyte. Let’s say you’re paying me one cent per megabyte. Now, if we want to do this over the blockchain, the naive way to do it is every time a megabyte of data passes through the connection, you would just make an on-chain transaction and you send me one cent. The problem is this requires lots and lots of transactions.
And the transaction fees are actually much more expensive than one cent. So it’s just completely economically non-viable. So here’s what we do instead. You put $10 into a smart contract, right? So you send $10 on the blockchain to an address where according to the rules of the Ethereum network, once those funds are at that address, those funds are controlled, not by a human, but by a computer program. And that computer program will then have some rules that I’ll explain later, right? So, at the beginning you send $10 to this contract. And so far you actually haven’t made any payments because as I’ll explain, the contract has rules that will allow you to get your money out. Now, here’s what you do after one megabyte. After we have one megabyte worth of Internet data passing between us, you’ll create an off-chain message and you digitally sign that off-chain message that just has the number one cent just written on it, right? So you just write the number one cent and you attach your signature and you send this to me. None of this goes on-chain. Then one more megabyte happens.
You write out an additional message that has the number two cents and you digitally sign it. You send it to me. Sometime later, every time a megabyte happens, you just send me one more of these messages. You keep on incrementing the number. And let’s say after a few hours of this in total, we’ve had 347 megabytes worth of communication and you’ve sent me a message that says $3.47. And you now no longer want to use my Internet. You’re signing off for the day, and so we’re done. So now here’s what happens. I can then take your message and your message that says $3.47. I can attach my own signature to it and I can publish it as a transaction going to the smart contract that you have your $10 in. This smart contract has a rule that says, if I send one of your off-chain messages, I call them tickets.
If I send one of your tickets, if I wrap one of your tickets in an actual transaction, and I actually publish your ticket through the blockchain, then whatever amounts of money is on your ticket goes to me and the remainder gets refunded to you, right? So I get my $3.47 and you get your $6.53 back. Now, it’s actually incentive-aligned, right? Because I always have the ability to use the most expensive ticket, the most recent ticket that you sent me and I don’t really have any reason to use one of your older tickets, right? So I’m always going to pick your later ticket. And so, I’m always going to claim all of the money that I’m owed and you would get your money back.
Now, if I disappear, then after some period of time, you have the ability to just to go in and take the money back for yourself, right? So the idea is that it’s this contraption where, in reality, you’ve made payments to me 347 times, right? We’ve had 347 interactions during which the amounts of money that’s entitled to me goes up and the amount of money that’s entitled to you go down, but actually there was only two actual blockchain transactions that are visible to and needs to be processed by the rest of the network. Right? So we make 347 payments, but the blockchain only sees two of them. And that’s a factor of 178 to improvement there. Right?
Naval Ravikant: Yeah. So if I can summarize this for a second for our listeners. Basically what you’re saying is, let’s say that you and I have a long-lived contract for some service, rather than publishing every little aspect of that contract under the Ethereum blockchain and flooding it, we go off to the side, we do a whole series of transactions, but every time we do a transaction, each of us stamp it and say, “Yeah, that little piece was done.” And we update the transaction between the two of us. And then when we’re finished, either one of us can go back to the blockchain and submit the record of all the transactions and say, “Look, it’s signed by both of us. So this is valid.” But either one of us can submit it and the blockchain executes it. So the blockchain only needs to know when we left with how much money staked on this transaction and when we came back and what the total change was. It doesn’t need to keep track of all the intermediate pieces.
Vitalik Buterin: Exactly. Yes, that’s a good summary. Now, channels are, I think the simplest layer 2, but they’re also the least powerful layer 2, right? They can only do payments, but they have a hard time doing many kinds of smart contracts, and so the channels exist and they are being used for more and more things, and there are great, but the thing that the Ethereum ecosystem is the most excited about is something called rollups. Now, I don’t want us to actually go in and fully explain the rollups because they’re even more complicated than channels, but for those who are interested, I do have an article. Once again, go to vitalik.ca. Scroll down, I think it’s called An Incomplete Guide to Rollups. And so I describe channels and also this thing called plasma, and then also rollups.
And rollups are really powerful because they can support not just payments. They can support the full generality of applications, exactly the same applications that you can run directly on the Ethereum blockchain itself. But if you do those things inside of a rollup, they become 100 times cheaper. So it’s this very powerful, scalability technology and see Ethereum community and the Ethereum community loves rollups because they’re very easy to upgrade to because if run an application on Ethereum, you can just run the exact same application inside of an Ethereum virtual machine compatible rollup of which a couple of projects exist. And actually, I think a couple of days ago, Optimism, are now instead, they’re going to launch their main fairly soon.
Naval Ravikant: Rollups are fascinating. I’ve been looking into them a little bit and they’re worth learning about. It’s basically the idea is just that, there’s these very complex machines that are not on the blockchain, that are off the blockchain, that are running the transactions, but then they’re submitting different kinds of proofs back to the blockchain to say, “Don’t worry, this was a valid transaction.” And the two different approaches, Optimism is optimistic where basically optimistic rollups say, “We assume people are doing the right thing, but we’re watching. And if someone commits fraud or makes a mistake, then they get punished for that fraud.” Whereas there are these zero knowledge-base rollups pioneered by StarkWare and others, which are basically saying, “Hey, actually, we’re going to submit proofs, which are much shorter than the actual computation, that the computation was done properly.” But I think these give together what? Another 100X speed up?
Vitalik Buterin: Mm-hmm (affirmative). Yes.
Naval Ravikant: So if you combine the Eth2 layer 1 speed up and the layer 2 rollup speed up, then you get the 10,000 times speed up.
Vitalik Buterin: Exactly. You’re going to get, some were over 100,000 transactions a second, and one other really nice feature of sharding by the way, is that it’s quadratic, right? So if the efficiency of computers increases by a factor of two, then you can support twice as many shards and each shard can be twice as large. And so the capacity of the whole system increases by a factor of four, right? And so, we actually expect that capacity to increase going even far beyond 100,000 over the next couple of decades —
Naval Ravikant: So, is it a stretch to say that sharding increases capacity as a square of Moore’s law, as opposed to just at Moore’s law?
Vitalik Buterin: Yes, this is the — mm-hmm (affirmative).
Naval Ravikant: So now if we get to 100,000 plus transactions per second, that’s a lot. I mean, to give it a comparable metric. There’s about 100,000 tweets per second at Twitter during peak times, and obviously these transactions are going to be much more sophisticated and or could be much more sophisticated than a single tweet. They can actually be arbitrary computer programs running on the side. So that’s quite a bit of scalability. So then I think the question comes up, well, where is it? A lot of people I know who are building apps on top of ETH have now had to come up with backup plans. There are competitive blockchains that are coming up, which trade-off decentralization security for speed.
So what they’ll do is they’ll say, “Well, we only have 20 validators run by our friends, or maybe like 100 people that we know and trust, but an exchange is a lot faster. Now we don’t have to get consensus from unknown people all over the Internet. We don’t need these complicated contraptions, and then they can basically run much faster.” So a number of projects, we’re looking at these as backup plans, but I know that they don’t necessarily want to use these because these are less decentralized. They don’t really fully live up to the original promise of blockchains to the same extent. So, the real question I think in everybody’s minds is, is there a timetable for these? Can we reliably target a date for certain kinds of improvements, because people are betting their businesses on this.
Vitalik Buterin: Great and very important question. So, I mean, I’ll start off with the progress of Eth2. So I think it’s important to reiterate, because I think a lot of people haven’t fully absorbed this. The Eth2 chain is already running, right? So there’s already a proof-of-stake chain. It does not yet have sharding, but the proof-of-stake system is running. The thing that has not yet happened is the event that we call the merge, which is where we basically actually take the existing activity on Ethereum and we fully move it over from the proof-of-work chain to the proof-of-stake chain. And then the proof-of-work changes, basically becomes irrelevant from there. The reason why we took this multi-step approach, where we first start the proof-of-stake system, and then we let both run in parallel for some time and then we merge at the end is just to give proof-of-stake sometime to prove itself before the entire ecosystem is asked to upgrade over. But basically, the proof-of-stake thing exists, has been stable, running ever since the launch and at some point fairly soon, we are going to actually go and merge all of the proof-of-work activity onto it.
So sharding is also going to happen. And sharding right now, there’s a spec, there’s prototypes of parts of it. I will admit that we were actually prioritizing the merge even more than sharding recently. The reason why for this actually has to do with the other thing, which is rollups, right? The thing to remember is that if you have rollups, but you do not have sharding, you still have 100X factor scaling, right? You still have the ability for the blockchain to go up to somewhere between 1,000 and 4,000 transactions a second, depending on how complex these transactions are. And so with rollups, as I mentioned, the optimism, fully EVM capable rollup is likely to launch, an initial being that release in around a month or so. There’s also a project called Arbitrum, which has also an EVM capable rollup.
There was actually simpler rollups that are only capable of processing simple transactions that are exchanging between assets unlike Loopring, and zkSync. And those rollups have already been running stably for about a year, right? So rollups aren’t even theory. They’ve been a practical part of even — a scalability of Ethereum for a few users for almost a year. And the thing that’s left is basically taking that same model and just fully extending it to not just support transactions, but also arbitrary applications. Right? So rollups are coming very soon and we’re fully confident that by the time that we need any more scaling of that, sharding will have already been ready for a long time by then.
Naval Ravikant: So you’re basically saying fully, very confident that something like an Optimism or a ZK based rollup, will be solving a 100X scalability problem within the next few months.
Vitalik Buterin: Yeah, I think so. I mean, I think there’s definitely a lot of people who are not going to be comfortable moving over just because it’s new technology and new technology always has risks, but I expect there there’ll be plenty of applications. I mean, possibly even nonfinancial applications like the Nifties, and domain names and so forth, to start off just because the risks are lower if things do break and then creeping up to higher and higher value things as people become more comfortable over time.
Naval Ravikant: So do you think that Ethereum could have a scaling schism, like Bitcoin did? Bitcoin split famously into Bitcoin and Bitcoin Cash, or the block size debate a few years back, which is all around scaling and some people were saying Bitcoin should be digital cash and so therefore, it needs these big blocks and it needs to handle more transactions. And other people said, no, no, Bitcoin is a Swiss bank account. It’s digital gold, and it needs to be secure. And lots of small nodes have to be able to run it. So we care more about security than we do about handling small transactions and the small block people won. And so Bitcoin forked. And now of course, what we call Bitcoin is a small block Bitcoin that won that debate. Do you think that there’s a possibility that some miners and people will stay on Eth1 instead of Eth2?
Vitalik Buterin: I think so, except I do think that the risks are much lower. A big part of the reason why is because we’ve been very open about proof-of-stake and sharding being the vision of basically from the first day. And I mean, Ethereum did already have this schism, right? Of Ethereum and Ethereum Classic. And a lot of the proof-of-work proponents did actually move over to Ethereum Classic already because they recognize that Ethereum Classic community and ideology was one that’s more aligned with that continuing proof-of-work forever. And so, why stay on the chain where the core developers and lots of people are eagerly expecting a proof-of-stake change if you can just move on to a platform already that accepts your values? So I think that was one of the factors that did actually end up making the Eth2 transition a bit more secure.
Another thing also is that I don’t really think there is a deep schism of ideologies within Ethereum in the way that there was in Bitcoin, right? I think in Ethereum, everyone is roughly on board with the idea that you have some layer 1 scaling and you have some layer 2 scaling. There are some longer term disagreements like Justin Drake, one of our researchers for example, is much more into making layer 1 more powerful, whereas I am more in favor of a simpler layer 1 and having layer 2 do more things. But that’s not an extremely deep and fundamental disagreement. Either approach is going to have lots of scalability and it’s going to deliver great environments for Ethereum users.
Naval Ravikant: So that’s interesting. You don’t even really run Ethereum. You have disagreements with developers and they could even change it in a way that you don’t like. Has that happened yet? Has there been a case where something has been implemented into Ethereum that the community or the other developers wanted, which you disagreed with?
Vitalik Buterin: There’s definitely been changes that I’ve wanted to push forward that I gave up on fairly quickly because there weren’t enough core developers or the community ended up disagreeing on them. There’s been changes that were pushed forward by some people who are not myself. And then where I just kept completely silent. So block reward decreases, for example, I was completely silent or mostly silent. ProgPow was mostly silent. It was obvious that the ProgPower side was losing. Things that I was trying to push forward. I mean, those are harder to find just because I tend to just naturally understand what the community would accept and I don’t really try to push things that I don’t think would be successful. I mean, there’s some minutia around scaling strategies and statelessness and state management strategies where myself and some other core developers have some different opinions. And so there’s a lot of back and forth where we try to satisfy each other’s concerns.
Naval Ravikant: Yeah. My sense from afar is you’re more coordinating than dictating and you’re doing what? Are you running the Ethereum Foundation? Is there an organization you’re a part of? Or are you just a roving individual with a laptop and a few friends who just writes blog posts and submits proposals?
Vitalik Buterin: Some of both. And I do the proposal submitting, I do some writing proof of concepts and in Python, I do some trying to coordinate people. The Ethereum Foundation as an organization exists. So the executive director of that is Aya Miyaguchi. She has been doing a lot of the logistical things for about the past three years and has done an amazing job. And, I ended up coordinating and working with her quite a lot on various things. But even the Ethereum Foundation, it has an important role because it has this large pool of capital and this high level of public legitimacy, but it’s not nearly the only organization within Ethereum, right?
There is a lot of proposals that got initiated on the outside. There was a lot of proposals that got a really huge amount of community support coming from the outside. Even organizations other than the Ethereum Foundation that have a lot of resources within the Ethereum ecosystem. So, for example, for the first few years, ConsenSys did quite a lot and ConsenSys is still doing a lot, but now there’s also Uniswap, whose treasury has just grown a huge amount and they are even wealthier than the Ethereum Foundation is. So, and I think in practice, it does end up being this loose collaborative effort between a lot of different groups.
Naval Ravikant: So Uniswap is interesting. Uniswap is, for those of you don’t know, it’s an application built on top of Ethereum, but it has its own token. And it’s one of the first automated market makers and decentralized platform for exchanging cryptocurrencies with each other without having to use a centralized authority like a Coinbase or a Gemini or a CoinList, instead you just go on to Uniswap and it’s a smart contract. It’s not owned or run by anybody except the community and a few developers, and there’s a token associated with it, but you can just automatically trade with this smart contract to turn, say, your Ethereum into a stable coin to get the equivalent of dollars or back. And so this shows how the Ethereum ecosystem is very different than the Bitcoin ecosystem.
In the Bitcoin ecosystem, there’s only one coin, there’s Bitcoin. And they don’t really tolerate other tokens in their orbit. Whereas with Ethereum, you have a lot of other tokens in the orbit and you’ll see blockchains that are competing with Ethereum, that are making different trade-offs and, whether it’s FLO or AVA or NEO, or whatever, there’s a whole bunch of those. But then there’s also people who are built on top of you, like Balancer and Curve and Uniswap and whatnot. And so what’s your view on all these other tokens? How many tokens are they going to be? How do you determine which one makes sense and which one doesn’t and do other blockchains make sense at layer 1, or should other tokens only merge at layer 2 now that Ethereum exists?
Vitalik Buterin: No, this is definitely a very important topic. Tokens are one of those things that’s really like playing with fire, right? On the other hand, fire is crucial to human civilization, but on the other hand, fire is very evil. It can burn up your family if you’re not careful. So the thing with tokens, right, is that the crypto is, space is not the only space that tried to build decentralized things, right? There were a lot of decentralized projects that are outside the crypto space, like Diaspora, the decentralized alternative to Facebook that people tried to build around 2010, is one good example. But the challenge with this pre-blockchain or non-blockchain decentralization or crypto, is that it’s harder to align the incentives and motivate people to actually want to participate in building and growing the community at a large scale. You can get idealists, but the problem with idealism is that idealism is not very socially scalable. And so cryptocurrency, on the other hand, can appeal to universal values, right? Where the real universal value is getting rich for a lot of people.
Naval Ravikant: And it seems with ETH you’ve been a bit of both. You’ve got a bit of both.
Vitalik Buterin: Exactly.
Naval Ravikant: You’ve got people who have ETH to getting rich, and then there’s also a movement.
Vitalik Buterin: Right. Exactly. And I think that balance is important, right? I think the failure of a lot of non-blockchain crypto shows the inability to do things at scale without that financial incentive. But at the same time, a lot of the more, at least in my opinion, a moral project within crypto that just care about the pump and the volume and getting a powerful and expensive token that they can get rich off of. Those projects end up not really doing well in the long term either. Right? And there have been plenty of projects where just VC funds gave hundreds of millions of dollars of capital to them, but the reality is that hundreds of millions of dollars of capital just can’t buy you a soul. Right? And so, I think a lot of people end up stumbling and falling on that to some extent. So, crypto, yeah.
Naval Ravikant: I was going to say, I think some of that is just driven by the pre-mine phenomenon where Bitcoin had a so-called fair launch, although you can debate how fair it was, but how fair the distribution is today. But everyone started mining at the same time or everyone who was aware of it. Whereas a lot of coins that have come subsequently, the team has a pre-mine where they get a bunch of the coin in advance. And as the amount of the pre-mine goes up and the competition moves from, hey, let’s mine as much Bitcoin as possible to, hey, let’s just create the winning blockchain and then get the big pre-mine. So it’s just move the competition from mining to creating or forking. So it’s almost inevitable once pre-mines became a little bit accepted that there would be so many different blockchains.
Vitalik Buterin: Yeah, no, I think that’s definitely fair too. Ethereum, once again, that’s fairly, moderate there. There was a pre-mine but no, the pre-mine was only about 12 percent, actually about 10 percent of the total supply. And people did have the opportunity to mine or to get by in the sale. And so a lot of people had the opportunity to become part of the ecosystem. But I do think that the less monetary, the movement aspect of this is important, right? If you’ll just go to CoinMarketCap and you’ll look at some of the top 10 coins other than say Bitcoin and Ethereum, you can’t always give a good answer for what values does that token represent. Whereas, for Bitcoin, you can, for Ethereum, you can, for ZCash, for example, I think you can.
So I think that there definitely is this complicated balance between different factors. Basically the coin can help, but too much emphasis on just a coin can hurt. And it’s challenging. I think Uniswap actually did really well with their coin because on the one hand, you could criticize and say, “Oh, this was only just a measure. That it was reactionary. That it was reacting to SushiSwap, trying to swoop in and, basically try to push everyone to quickly migrate over and they had a coin. And so people got into SushiSwap because they just wanted to get rich off of it. And so Uniswap reacted by making their own coin.” But at the same time, they did this one really cool thing, which is, a big part of the initial distribution, was this very egalitarian airdrop, right?
Basically, if you had used the UniSwap even once before the airdrop, how it began, you would get 400 UNI tokens. So at the time those UNI tokens were worth about $3.50. So the joke was Uniswap actually delivered on giving everyone a stimulus check. And people really loved that. And the supply distribution of UNI was very widely dispersed, and the whole thing was this DAO where a lot of people could participate in decision-making. So I think there’s ways to do tokens well, and there’s ways to do tokens poorly.
Naval Ravikant: Yeah. The backdrop on SushiSwap is Uniswap was this automated market maker, this decentralized exchange that launched and then they got attacked. They got cloned by this other one called SushiSwap. Joke on UNI Sushi. And then they tried to steal the Uniswap community by saying, “Hey, come here and we’ll pay you more by giving you tokens.” And then Uniswap was forced to actually create a token, which they then gave away to their community, which are called airdrops. It’s like helicopter drops of money, except now it’s in made-up tokens. So there’s all this interesting stuff that goes on in crypto where trying to build and maintain communities, you have to figure out how to distribute the spoils, but contrast how this is compared to say Facebook or Twitter, you don’t see Mark Zuckerberg airdropping Facebook stock on the users and you don’t see Jack Dorsey airdropping Twitter revenues on the users, but that’s exactly what happens in blockchain land. And Ethereum might’ve had a small pre-mine, but I do remember early on, looking at Ethereum and I think I talked to Balaji Srinivasan, one of your other guests, about it, Tim, where we were looking at ETH back in the day when it was first launching. And we were just really confused because it seemed like there was this one brilliant technical guy surrounded by 15 other people who all had the title co-founder and it was very confusing to evaluate as an investor.
So we ended up not investing, to our detriment. But that’s my way of saying that this was not a Vitalik get rich quick scheme. I don’t think Vitalik was even the single largest token holder. I think there were many other people who frankly, had a lot less to do with Ethereum’s success, who ended up holding a huge number of tokens. To the extent that Vitalik is the one who was working on it and pushing it forward, it’s a labor of love. And I’ve always been super impressed by how his team is very altruistic and really wants to make the world a better place. Maybe they’re young and naive, but it’s refreshing to see that. I think in terms of branding, a lot of people look at Ethereum as Lyft to Bitcoin’s Uber, right? There’s a crypto right-wing libertarianism versus a crypto left-wing libertarianism.
Tim Ferriss: Naval, let me jump in for one second here, if I may ask a naive question, a novice question maybe. And if I’m completely looking at this the wrong way, I’d love to be corrected. Thinking of Ethereum and comparing it to, say, Bitcoin and considering the possible regulatory threats to Bitcoin and I think probably a stronger focus on cryptocurrency than blockchain by regulators. And just by extension, if we’re thinking of Ethereum on some level as both cryptocurrency but also as a world computer, maybe as if Amazon had its own cryptocurrency, right, bezonians or whatever they might call it. And then AWS, that even if there were a crackdown on currencies, that Ethereum would have some resilience and antifragility in that respect. Does it mean that Ethereum in its entirety is less subject to regulatory threat, or that it can thrive in the face of regulatory threat along the lines of that which Bitcoin could face?
Vitalik Buterin: Comparing the regulatory situation of Ethereum and Bitcoin, I think both benefit from being highly international, right. Bitcoin has a strong community in the US, it has a strong community in China. It has a strong community in the EU and lots of other places. Ethereum is very similar in that regard. In other words, these very strong communities in lots of different countries, including countries that are not geopolitically on the same page with each other. There’s a lot of resiliency in that sense. Now, of course the other aspect of politics is that it’s not just about what they can do. It’s also about what they want to do. The reality is that regulators have cracked down on cryptocurrency significantly less than they theoretically could, right. They theoretically could make something like Coinbase illegal overnight.
Tim Ferriss: Right.
Vitalik Buterin: And I think the reality is that they don’t, in part because they do see a lot of the positive value that’s coming out of these platforms, right. There are even regulators that want to use public blockchains and even things like Ethereum to build applications on top of them. They see value in some of the advantages that the things like stablecoins for example, could provide and non-financial applications of various kinds.
Naval Ravikant: Yeah. If you wanted to build a fraud proof voting application, you’d probably do it in Ethereum.
Vitalik Buterin: That’d be interesting.
Naval Ravikant: Yeah. Cryptocurrencies are inherently designed to be sovereign resistant, right. They’re designed to be stateless. And so the geographic redundancy is one aspect of it. And some countries try to ban it. I think for a while, people think China tried to ban it and that failed. And right now, India is talking about banning it and that will end in tears, right. That’s not going to go well when you leave your country out of the innovation in the next 10 years, so hopefully they don’t do that. But there’s also redundancy in terms of design. For example, going to proof-of-stake is a different kind of redundancy than being just all proof-of-work. You’re not subject to the same kinds of attacks I think being used for all kinds of applications.
Tim Ferriss: Naval, could you speak to that?
Naval Ravikant: Yeah. Proof-of-work is you shut down miners and miners of hardware and equipment, where they live, right. They need a physical presence, whereas proof-of-stake as validators, we just need an internet connection. And so they’re harder to stop and harder to find in theory. And then you also have just what applications are running on top of these platforms? If you’re just running DigitalGoal, that’s one application but if you’re also running, as Vitalik said, functioning prediction markets, public goods, financial systems, voting systems, gaming systems, nifty tokens, art galleries, right and all those kinds of things, then it gets very hard to shut it down. And I actually think eventually, all internet traffic will be encrypted and all of it will require cryptocurrencies to just allocate scarce resources. Even today, there are things that we do on the internet that are centralized, like caching and routing and spam filtering, that should be decentralized and involve crypto payments for efficiency.
And once we start getting to those applications, it’ll be very hard to turn off crypto without turning off the internet. It’s the native money of the internet. And so if you take away value transfer from the internet, the internet as we know it will be stunted at best and more likely to cease to function at some levels.
Tim Ferriss: Thank you. Back to you, Naval.
Naval Ravikant: Yeah. Oh. Yeah, yeah, yeah. No, not at all. No. Yeah. There’s an infinite number of rabbit holes we can go down. Just coming back to Ethereum for a second. There’s Bitcoin, which is clearly digital gold. There’s Ethereum, which is the world computer. And with digital gold, high price is good. You want your gold to go up in value, except to the extent these days digital gold, Bitcoin, has been going up but it actually gives me some trepidation. I tell people it’s like my insurance policy, it’s becoming more valuable, my life insurance policy, right.
I don’t know how I feel about that. But with ETH, it’s not clear if the price going up is always that good for adoption. It’s good for the people who are pumping and holding but is it so good for the people who are trying to use it? Do you have any thoughts on the price of ETH and how much — for example, we don’t even know exactly how much ETH there is going to be the future, right. The supply curve is a little bit undefined and some people say, “Oh, it could be too big. This thing will get inflated.”
Whereas there are other arguments saying, “No, there are certain applications we’re going to have for which you have to lock up ETH or even destroy ETH to use these applications. ETH may end up being more valuable. Do you have a — what is your current point of view on where the ETH supply heads and what the ETH price means for the ecosystem?
Vitalik Buterin: Yeah. One thing that I think you alluded to a little bit, is that there’s this proposal called EIP-1559, which redesigns how their transaction fee market works. And there’s a lot of very wonky economic math for why the specific changes that it makes sense, but one of the consequences of that change is that the majority of fees, instead of going to the miner or corporate creates the block, we’d get burned. It would just literally get deleted out of existence. And so if demands to use Ethereum is high enough, then there would actually be more ETH being destroyed than is being created. And so the joke that I would sometimes make is, if Bitcoin knows if fixed supply is sound money, then if you have a decreasing supply, does that make us some ultrasound money? And actually it’s not even that far-fetched a possibility. If you look at the transaction fees for the last month, they actually have been on a lot of days greater than the block rewards for that day.
It’s interesting because it basically creates this more direct connection between people using the Ethereum blockchain and ETH having some value, right. At the beginning, the way that ETH was even described when we were doing the sale, is that this is like gas. You’re buying this token that you need to use if you want to span transactions. And if the token is actually a consumable, right, then it actually behaves even more like — well, I guess gasoline, as the original metaphor, right. If people want to use it, they would actually have to consume it. And so ETH — the value of it is actually something that depends on the Ethereum network being useful. And it’s a bit of a difference, a guiding principle that something like Bitcoin, right, where Bitcoin just derives value from — Bitcoin the currency derives value from Bitcoin the currency and Bitcoin the blockchain is this thing off in the side that, “Well, okay. Fine. It has to exist.”
Whereas in Ethereum, it’s much more of a system where the blockchain is the point and ETH the asset, gains value from the blockchain doing its job successfully.
Naval Ravikant: It’s interesting. Bitcoin, the value is in the currency or in the Bitcoin itself. Whereas in ETH, the value is in the blockchain being used and the ETH is the by-product of it. Yeah, to use my strained castles made of math analogy, I think of Bitcoin is the big impregnable citadel the Fort Knox, into which you’re putting your gold and the thing has high walls and is guarded really well. And they don’t change much. And it’s the same as it was in 2009 or 2011, so that no one can break in but ETH has this dynamic network of little city states that are trading with each other, so the more trade there is, the more free flow of information and goods, the more valuable the whole system becomes but no single point of it is necessarily as impregnable.
For example, I do expect that we’ll see more hacks and break-ins and failures in the ecosystem as a whole, not in ETH itself but in the ecosystem around ETH, than we will in the ecosystem around Bitcoin necessarily but at the same time, ETH is dynamic and growing and adaptive, which just makes it more of an evolving creature.
Vitalik Buterin: Yeah. I’d agree with that, with one reservation, which is that I think the Bitcoin ecosystem does have its own ticking time bomb demons too, like Tether is one example.
Naval Ravikant: Yeah. There are pieces around the Bitcoin ecosystem that are semi centralized or of unknown trustworthiness and do rely on trusted third parties, I should say, but as the Bitcoin people say, “Not your keys, not your coin.”
Vitalik Buterin: Right.
Naval Ravikant: And trusted third parties are security holes. They’re aware of that. I think the Bitcoin maximalists, which I believe is a term that you co-coined, the Bitcoin maximalists would say, “Well, that’s not Bitcoin, right. That’s something else.”
Vitalik Buterin: Right.
Naval Ravikant: One of the things to think about here — and I think you care about this more than most people in crypto, which is nice, is that you do seem to care about wealth inequality, the Gini coefficient, and the distribution of coins. And one of the criticisms about crypto that I see a lot is like, “Well, okay. You’re getting rid of the old oligarchs for this new financial system, but you’re just replacing them with new oligarchs, who are the original Bitcoin and ETH holders.”
And how do you think about the distribution of wealth in a crypto run economy as opposed to a fiat currency, aka the US dollar and the Euro run economy?
Vitalik Buterin: This is definitely, I think, one of the challenging questions for the community to grapple with. This is actually one of the reasons why I really like Ethereum’s more multicurrency welcoming ecosystem, right. Sure, okay. You have ETH and there’s a limited set of opportunities to get new ETH directly from the tap. And at some point, the supply is going to stabilize and if you’re buying ETH, you’re buying ETH from previous people but at the same time, there are these new applications that are launching. You have your UNI, as I mentioned, where the distribution was I thought, quite egalitarian, right. As I mentioned, the $400 UNI stimulus checks that just go to everyone who ever used the application, at least once and they could try really hard to not favor wealthy users too much.
And then Tornado Cash had an airdrop a couple of weeks back. There’s more of these assets coming in. And I think that kind of churn is healthy. It breathes new life into the ecosystem and it breathes new life into the wealth distribution and it does create opportunities for new people to be able to come in and participate on a somewhat level footing as well but then if we want to compare all of this to the fiat ecosystem, it’s a difficult comparison to make, just because the institutions are so different and it’s difficult to match one up against the other, right.
Fiat currency is — they basically get created by a combination of the central bank and the commercial banking ecosystem. And in terms of where the newly generated value comes in, both sides of that get some share essentially. And there’s bad things that come out of it. There’s also good things that come out of it. I know this is a controversial position along the libertarians, but I actually like the idea that if you have a fiat currency, then the government can print it and just use that as a source of government revenue. The reason why I like it is because I think if the governments could get money through unobtrusive means, that reduces the extents to which it has to rely on getting money through more intrusive means and rely on taxation and more direct —
Naval Ravikant: The problem is when it’s unobtrusive, it’s very easy to do it very sneakily.
Vitalik Buterin: Right.
Naval Ravikant: And these taxes have to be collected now, whereas printing can kick the can down the road for the next person to solve.
Vitalik Buterin: Right, right. This is the argument in the other direction.
Naval Ravikant: There’s a moral hazard there. And I think we’re watching it play out. Where we printed $8 trillion last year, and who’s going to pay for it?
Vitalik Buterin: Right, the nice thing about cryptocurrency of course, is that the ecosystem is much more transparent. And so it’s easier to analyze and understand what the rules are. And within the context of a crypto ecosystem, as I mentioned, you can still do very egalitarian things. You can still reward people who were very important early contributors to things that ended up being very important. You could still do all of those things. And we do have a responsibility to get the balance right, but the environment is just inherently a more open and honest one, just because these are decentralized systems and everyone does just — they see exactly what’s going on.
Naval Ravikant: Yeah. It’s certainly more transparent. You can tell what the money supply of ETH is at any given point, good luck doing that with the US dollar money supply. Or you can tell what the inflation on ETH is at any given point. And as you say, there’s opportunities to build more applications on top of ETH and maybe ETH is the app store for decentralized applications but some of those applications can go on to capture just as much value and create just as much value as ETH itself.
Vitalik Buterin: Yeah.
Naval Ravikant: I think that’ll be — the really interesting development in the last year is just to see applications on top of ETH really creating and capturing and building lots of wealth and value. And so in that sense, this 2021 and 2020 run-up seem a little different to me than the 2017 run-up, which was based on just a lot of hype, frankly. As we see crypto playing out, you’ve also had some very interesting thoughts on everything from radical markets to political philosophy, to what happened in 2020 and so on. And we could spend a whole podcast on that but just at a very high level, you had a really good post on your blog saying Endnotes on 2020. And it was about a lot more than just crypto. What else are you really interested in these days? Is it AGI? Is it life extension? Is it public goods? Is it different kinds of voting schemes? What’s really on top of mind for you that’s not directly crypto related?
Vitalik Buterin: Some of all of those. I think the changing way in which economics works is definitely one of those really important topics, right. There’s a couple of different changes that’s happening. One of them that I talked about is just public goods becoming more important, right. A lot of the ways that people had thought of economics 50 or a hundred years ago, they’re just focused on private goods, like cars, houses, food, things like that but there’s also public goods, right, which are projects that benefit a large and unselective group of people.
And so no individual person who benefits, has the incentive to personally fund the whole thing and it’s hard to push people to pay for it because you can’t deny the benefits of the thing to people who don’t pay it for it, for example, right. And so scientific research is one example of a public good. My blog is one example of a public good. Open source software is an example of a public good. And on the internet, public goods are even more common than private goods are. And so our economics just has to just take that fact seriously. And a lot of what’s been happening in the blockchain space in some ways just is the crypto world trying to grapple against those things.
Naval Ravikant: Basically, these public goods are aware that the costs are concentrated. If I want to fund scientific research, I do it out of my own pocket, but it benefits all of humanity. The benefits are distributed.
Vitalik Buterin: Exactly.
Naval Ravikant: And so these tend to be undersupplied. There tend to be too few of them.
Vitalik Buterin: Yes.
Naval Ravikant: And so there are schemes out there to tackle some of them. I think you’ve talked about quadratic funding as an example.
Vitalik Buterin: Yes.
Tim Ferriss: What is quadratic funding?
Vitalik Buterin: Quadratic funding is this interesting mechanism that basically says anyone can donate money to public goods through the mechanism but to compensate for this under provision that you talk about, the mechanism provides a subsidy to every public good. And that subsidy depends not just on the amount that was contributed but also on the total number of people who contributed, right. For example, if there’s two projects, they both got a hundred dollars but one of them got say, $80 from one person and $20 from another person. And the second project just got $1 from each of a hundred people, the second public good is much more public than the first public good. And the tragedy of the commons on the second one, is, much greater, right.
And so the facts that the second one managed to get to a hundred dollars despite the 100 way tragedy of the commons, implies that it’s a really important project. And so the quadratic funding mechanism actually gives a much greater subsidy to the $1 from each of a hundred people project than it does from the project that got just a hundred dollars from a split between two people. And so we’ve been experimenting with quadratic funding. There’s this thing called Gitcoin grants that happens a few times a year and that’s had about seven or eight rounds by now, I forget the exact number, just for public goods within the Ethereum ecosystem. And that’s worked really well. That’s been one of the interesting experiments that I’ve been following.
Tim Ferriss: A question on quadratic funding, just to hop in here, since I’m involved with a few different types of scientific research. Are those funders in those experiments that you’ve run, anonymized or de-anonymized because I’m thinking through the example you gave and how there are other plausible explanations for why there might be two funders. I’m just thinking about for instance, reputational risk associated with certain types of scientific research.
Vitalik Buterin: Right.
Tim Ferriss: There are other plausible explanations but those largely hinge on named names versus them being anonymous.
Vitalik Buterin: Yes, right.
Tim Ferriss: How do you think about other contributing factors, depending on how you’re conducting the experiments?
Vitalik Buterin: Sure. First of all, in quadratic funding, unfortunately, you do need to have some kind of model for identity because you need to prevent the two people from just pretending that they are 100 people.
Tim Ferriss: Right.
Vitalik Buterin: But with cryptography, you actually can do fancy things that give you most of the benefit from having anonymity, despite needing to have an identity system. Basically, you can have a system where people can make all these contributions and they are done in such a way that the system identifies how many unique contributors there are for each project but where the system does not get an idea — nobody actually gets any idea of exactly which particular person donated how much money to which particular project, right. And this is done using this really important and fascinating topic of a zero-knowledge proof cryptography. And zero-knowledge proof cryptography — basically, the idea is that it allows you to make cryptographic proofs that some statement that’s true. I can make a cryptographic proof that says that I have 100 coins or that you assigned a message that contains some facts about me and it was signed with your key and you can make these proofs but where the proof does not reveal the contents of the thing that it’s proven, right.
For example, I can prove that I have an account that has at least 100 coins but I don’t have to prove which account it is. I don’t have to prove exactly how many coins I have. And there’s a lot of this very fancy mathematical magic that basically creates this protocol where if you give me a proof, then I know that the statement is true because if the statement is false, you would have had no way to generate the proof but if I have just the proof, I can learn nothing else beyond the fact that that particular statement is correct. This is incredibly powerful cryptography, it’s behind Zcash for example.
There’s also Ethereum’s applications, like Tornado Cash that are using it. Zero-knowledge proofs also have these really nice scalability proofs. The proofs are very quick to verify, even if the statement that they’re proving is incredibly complex and ZK-Rollups like some of these scaling solutions, end up really benefiting from using them. Very powerful technology. And I think it’s also very significant from a social perspective because we have this broader anonymity versus accountability debate, right, of the benefits of privacy versus the benefits of basically persistent reputations and zero-knowledge cryptography is really powerful because it may in a lot of cases, allow us to get both good things at the same time. It could get us the benefits of things like persistent reputations while at the same time, getting a lot of the benefits of anonymity.
Tim Ferriss: Seems very powerful. Just to follow up on that, thinking of scientific research, I’m going to ask you what areas you might have particular personal interest in. I know you have some interest in life extension as evidenced by the dragon slang parable on your website or that you link to from your Twitter bio but it strikes me that the quadratic funding experiments would also be heavily dependent on equally simplistic or simplified communication of competing, not necessarily competing but contrasted scientific studies, right because there are some instances just in my experience where scientific studies that require a lot of scientific knowledge or due diligence, would have fewer funders compared to others but that doesn’t necessarily reflect less importance or impact potential.
Vitalik Buterin: Yes. No, this is also a very important point. And I think the solution to this is that quadratic funding by itself doesn’t solve all the problems and you have to combine quadratic funding with other mechanisms. I can give two examples. One example of how you could do this, is you could just set up an organization where the organization has some smart people and those smart people do a good job of picking who the scientists are that are really worth funding. And then that organization gets a five- or 10-year history. And people see that, “Oh. Yes, this organization does have a surprisingly good track record of funding studies that actually do end up turning out to be meaningful five years down the line.”
And then people will just contribute through the quadratic funding scheme to this organization and the organization will be able to leverage its own reputation. Now, if that organization ends up doing bad things and abusing this public trust that it’s earned, then people could very easily just stop contributing to it and start to contribute it to another group. That’s one approach.
Another approach is that there could be clever ways to combine quadratic funding with venture capital. The idea here is that imagine if when people make a public good, they create a coin associated with that public good and they just let people buy the coin. And when people buy the coin, the revenues just go to the people who issue it. And then what you can do with quadratic funding, is you can basically collectively buy out these coins, right. You can just say, “Okay, this coin is a coin that represents a project that gave the world, say, a million dollars worth of value. And so we’re going to quadratically fund a million dollars into the coin.”
And so anyone who bought that coin would be able to benefit, right. And so the idea is that if there are intelligent investors that are able to recognize that something will be valuable 10 years in the future, then basically they will be able to make a profit off of this. And over time, if the market becomes more efficient, then — if anyone could has something that is maybe difficult for the wider public to determine its valuable at the beginning but then is likely to lead to some importance outcome that just everyone recognizes is really valuable sometime in the future, then these investors can fill the gap, right. You have these two approaches. You can either rely on reputation and do it retrospectively or you can rely on this combination of quadratic funding with tokens and investments and do it prospectively. I think both of those are really interesting.
Tim Ferriss: I love this possibility to combine also, right. You could potentially have all of the elements that you described combined.
Vitalik Buterin: Yeah.
Tim Ferriss: And Naval, you sound like you want to jump in.
Naval Ravikant: I was just thinking that campaign financing works a little bit like this. Maybe accidentally, maybe the system has just navigated to it through a complex systems level intelligence but if you look at campaign financing for when people run for office, there’s a maximum limit they can get per donor, right. And so an individual can only gift a certain amount to a congressman or to a senator or a presidential candidate. And then the feds also have matching funds on top of that. It’s a combination of these schemes because by limiting the amount that any one person can give, you’re creating a quadratic — although it’s not truly quadratic. Someone very wealthy, I guess they could give a lot more through a side vehicle but then that’s less efficient because they’re not allowed to coordinate with the main campaign. There’s a really badly implemented version of quadratic funding with matching dollars already in existence in federal campaign finance.
Tim Ferriss: That’s a good point.
Naval Ravikant: Yeah.
Tim Ferriss: Vitalik, what areas of scientific inquiry or research are on your short list of most personally interesting at the moment?
Vitalik Buterin: Yeah, no. You brought up life extension. Life extension is definitely really important to me. And the coronavirus has actually even had the positive side effect of speeding this along in some ways but there’s a lot of extremely promising things happening in biotech, right. And I think there’s a very significant chance that where we’re standing today, is basically — is for biotech, the equivalent of where computers were in 1950, right. And so if you imagine the difference between the ENIAC and a modern laptop or smartphone, that’s the difference that we’re going to see between the biotech of 2020 and the biotech of 2090.
And so if right now, we can already come up with vaccines for a virus — well, it’s a year from deployment to start but really, the whole thing actually happened much faster. And most of the delay can be blamed on bioconservatism, but that’s a whole other discussion. If you go from even there and then add 70 years of progress to that, it’s very easy to see it. Just even the process of aging turning into something that just becomes reversible and it being a regular thing for people to live one and a half, two centuries and then go even further from there. No, I think there’s just a huge, nice humanitarian outcome that can come from that. Basically, the concept of your grandmother dying is just going to slowly leave the public consciousness the same way that the concept of getting lost in a city slowly left the public consciousness over the last 25 years as we got better cell phones, and I think that’s a really lovely and much better world to spend a lot of resources to shoot for.
Naval Ravikant: Do you think that’s realistic though, given all the three-letter agencies that slow down experimentation development? Because I worry it’s more like nuclear power where they can’t tolerate a single death, so the innovation isn’t really allowed.
Vitalik Buterin: Right, so this is where I say a controversial thing, which is I think I’m very happy that the coronavirus has helped to de-legitimize bioconservatism to the extent that it has.
Naval Ravikant: Yeah I agree with that. The Moderna vaccine was ready on January 13th.
Vitalik Buterin: Yes. And even things like human challenge studies like the default I think bioethics opinion around a year ago was like “Oh, my God this is unethical.” And now, like in the UK, they’re actually happening. No, this is great.
Naval Ravikant: Yeah, it is good if it breaks down bioconservatism to some extent, because the pace of innovation is too low. It’s like what we’ve done to nuclear power if we do that to biotech and we kind of have already to some extent but if we do it even more then, there’s no chance of grandma living forever, there’s not even a chance of me living 50 years longer, let alone grandma living forever. You’re 27; I’d love to see where you’re at 47. You’re going to be a really interesting guy. You already are, but you’re going to be an even more interesting guy.
Tim Ferriss: Even more interesting at 447.
Vitalik Buterin: But I hope you guys can both come to my thousandth birthday party.
Naval Ravikant: Well, are you on some kind of caloric restriction or intermittent fasting?
Vitalik Buterin: So far I do the poor man’s intermittent fasting, which is that I just usually don’t eat breakfast. I do again the usual exercise, nothing too fancy. I eat kind of at least a couple of the basic supplements that the life extension cool people are recommending. Nothing too much fancier than that so far, though very closely watching this space and then I’m sure I’ll end up doing much more things so 10 or even five years from now.
Tim Ferriss: Do you take rapamycin?
Vitalik Buterin: I do not take rapamycin. Metformin is the one that I take. Ashwagandha is another that I take,
Tim Ferriss: And just for those people listening, who should know this. Number one, none of this is medical advice. Number two, metformin, just as an example, none of these things should be taken without advice of a medical professional, metformin is used in the treatment of type two diabetes, glucophage, but I’m also familiar with it. How do you decide what to implement versus not implement for yourself personally?
Vitalik Buterin: I just ask around a lot of people in the life extension community. I read the studies as I look at just what are some of the high level results, and then just kind of narrow it down to a couple of things.
Tim Ferriss: It is remarkable how many people in various sub-communities have been using a lot of these interventions longitudinally. I remember when I was working on my second book looking into trans-resveratrol and finding — even at that time this was 2008, 2009. People who had for years been using want to say 500 milligrams per day. So you were able to identify certain long-term effects and side effects granted anecdotally, but still having an N of, I don’t know, maybe a thousand people on this forum. So there is a lot to be gleaned from these groups.
Naval Ravikant: Yeah there’s even a new one making the rounds. Glucagon-like peptide GLP one. I’m sure you’ve seen some study floating around in that, but yeah, these things are very unknown; I wish these were more out in the open and that there was a very very strong anti-aging research community that was functioning out in the open that was trading notes on what works and what doesn’t and, able to run some kind of human trials more efficiently because fighting aging is a very time-sensitive task.
Vitalik Buterin: It is, yeah. It’s literally half the deaths of World War II for every year that it gets delayed or however that number of lives saved for every year that gets brought earlier.
Naval Ravikant: One analogy I heard that I liked was, “We’re all born time billionaires with billions of seconds of life.” And then we spend those and now you get to someone like Warren Buffett and I’m sure he would trade a hundred billion dollars for more billions of seconds, but he can’t, right? In fact, healthcare is the ultimate inelastic good. On your deathbed you’ll spend any amount of money to live even an hour longer. So certainly the economic incentives are there, the personal incentives are there, but because of this concept that people who don’t know what they’re doing are going to hear something and run out and ingest some substance and then die, drink bleach, or take too much rapamycin, because of that kind of fear we’re not allowed to do any real innovation or discovery and it’s literally killing us outright.
And if we just reframed it as well, no, it’s not that we’re dying of aging, we’re dying because you won’t let us do the innovation, do the research, it might take on a different take. But I was actually a little disappointed with the coronavirus response because I thought we would have had faster trials of the vaccines, but the fact that they were still kind of slow and even now the deployment is being held up because we have to create these perfect vaccine delivery packages instead of just a kind of quick and dirty vaccination. And we have to go through these very regimented protocols rather than just saying “Everybody just line up and let’s just go as quickly as possible.” Because we insist on doing things in kind of this bureaucratic, overly controlled way, we’re still slowing things down. And if coronavirus wouldn’t get us to accelerate our normal processes into a wartime footing, then what will?
Tim Ferriss: Yeah, I also just want to add that I think given my experience with a highly stigmatized field of scientific research, which is psychedelics and psychedelic compounds for intractable or difficult to treat psychiatric conditions, I think that life extension or the community itself and proponents thereof could spend a lot of their oxygen and calories trying to convince regulators and three-letter acronyms to classify aging as a disease and therefore allocate funding, and I think that that is going to be very difficult and possibly wasteful compared to decentralized or distributed funding from citizen philanthropists or donors of various types. I think a lot of it’s going to come down to independent financing since that has been the case, even all the way up to phase three trials for compounds that show tremendous effect sizes in the treatment of depression and PTSD and so on.
Vitalik Buterin: Yeah. I think that another important thing also is just kind of international outreach and more connections because ultimately the US is not the center of the universe and there’s plenty of very smart people in the EU like Singapore, China, India, Canada, whatever other places. And there’s a lot of great talent there that I think could also benefit, help all of humanity solve problems faster. So if we can just work together on the problem more, hopefully, prevent kind of like stupid nationalism from adding too much friction between things.
Naval Ravikant: Yeah, I think a lot of the newer generation, rather than just being patrons of the arts, they’re trying to figure out how to become patrons of science. And instead of just doing venture capital, we’d all like to figure out a model for venture research because we need more science, right? Science is upstream of technology and the faster we can move science, the more it’ll benefit us across the board. So I don’t know where else you want to take this Tim but I have some kind of more of the closing questions type for Vitalik. If you’re ready for those.
Tim Ferriss: I want to take this where you want to take this, Naval.
Naval Ravikant: Okay. Yeah so one question I kind of have is given all the tumultuous change in 2020 — because coronavirus was a trigger, but it was a trigger for accelerating a lot of things that were already happening — where do you think the world heads in the next few years where maybe your peers might disagree with you? What are your contrarian views or your kind of uniquely held individualistic views on how things are going to play out that are not yet consensus? And this is unfair because aging was a good one. You made a solid, you went out on a limb on it.
Vitalik Buterin: Well, aging is an example that’s like it’s the contrarian in the world, but definitely not contrarian among my circles, I guess.
Naval Ravikant: When I went through your writings, the idea that there will be many blockchains and many tokens, right, is quite different. The idea that the internet has increased the number of public goods rather than the number of private goods is actually quite contrarian because we think of it as going more and more private property, but on the internet it’s one-to-many so there’s all these public goods. And I think you were the first one to really hammer that point home in a big way. And then I think this aging thing is another one. So, I’m just digging, seeing if there’s any more.
Vitalik Buterin: Yeah, no, another thing that might’ve been iconoclastic two years ago, but is very much not today would be a kind of just geographic decentralization, right? Even with Ethereum we took a very active effort of not making it too centralized in any one country or any one city in any one place. And I feel like we’ve benefited a lot from that, but now of course, everyone is geographically decentralizing and Coinbase has announced that none of its management live in San Francisco and so forth.
Naval Ravikant: Yeah. It’s very hard to associate Ethereum with a single country. I think it was created by mostly Canadians and your blog has a .ca on top of the domain.
Vitalik Buterin: Well, it depends. I’m a Canadian, but then my blog has a .ca the foundation is Swiss, and now there is a Singaporean entity as well. A lot of the initial developers were German. A lot of developers are from the US as well, one of the most efficient Eth2 clients is based in Australia. So I feel like we kind of actually took those values seriously and did it well.
Naval Ravikant: And the Foundation has spent a lot of time in East Asia. I think I’ve seen you kind of go conference to conference in East Asia, and Korea, and Japan, and places like that spreading the word so, it is quite decentralized geographically, what advice do you have for someone who wants to get into Ethereum, and doesn’t just want to go and buy the token, right? Who actually wants to dive into the ecosystem, what is a person to do to get involved in the Ethereum community and the ecosystem? Where are the points of leverage?
Vitalik Buterin: I think one is learning to build an application and actually trying to build an application is I think one, a great place to start. If that’s the sort of thing that interests you, even if you don’t turn it out as a full-time developer, it’s like forcing yourself through the process still helps you just understand what are the different pieces and actually what function do they serve? Another approach there is — well now obviously, they’re kind of temporarily suspended, but generally there’s a lot of local communities that kind of in-person meetups and all that, that people can be part of and that’s often a great opportunity to get to meet other Ethereum people.
There’s a lot of materials online. Although generally I am a much more big fan of hands-on learning. So kind of learning by doing instead of learning by taking in information. So I highly recommend just trying to build one application, for a lot of people. And then otherwise there’s just a lot of different communities and you just have to go in and start taking part in them.
Naval Ravikant: Yeah, for those of you who are curious, I think Vitalik’s blog has spawned quite a few of the things in the Ethereum secret ecosystem. I think it was one of your musings that led to the creation of Uniswap. And, recently you’ve been talking about roll-ups, and social wallets, and all kinds of other things that we built on top. Although maybe this is the first year where I feel like the community is outpacing your ideas like with Nifties, and with some of the games that are coming up on top of ETH and so on. it does seem like there’s a lot of innovation going on. It’s hard to keep up. It’s very very hard to keep up, but that’s a good thing.
For those of you also looking for what’s next down the rabbit hole, Vitalik briefly mentions zero-knowledge proofs. I would say that the beginning of the rabbit hole, the entrance is Bitcoin. Then you go a little further down, you find ETH, but then when you find zero-knowledge proofs, that’s the big mind blowing moment when you realize just what crypto is capable of. And there are analogs for what crypto can do that almost cannot be done in the real world.
It’s sort of like when you go into physics and when you encounter quantum mechanics, it sort of makes you rethink that no, not everything necessarily maps onto exactly how I observe it the same way when you get to zero-knowledge proofs, you realize that the levels of creativity and crypto that enables are greater than what we might have had pre-crypto. So that’s also an interesting space to kind of learn about. And I think zero-knowledge proofs have probably been incorporated into an emerging Ethereum ecosystem even more than we expected, right? Because a lot of people called it moon math early on. It was considered too hard to be practical, but people have been chipping away at it.
Vitalik Buterin: Yeah the moon math is definitely significantly less moony than it was even one or two years ago, even Zk-SNARKs, another term for zero-knowledge proofs, have just become considerably simpler sometime around one and a half years ago. I might even try to make another post. I might modify my most recent ones on vitalik.ca where I tried to talk about like, how, roughly, Zk-SNARKs work. And I actually feel like I need an explanation that at least the high school version of myself would have understood, which is, it’s still not perfect, but it’s significantly more understandable than any of the previous ones have been. So I feel like the ideas are definitely trickling down. So I do have another answer to the question of what contrarian things or what things are you thinking about that other people are not thinking about yet?
I think this is kind of taking a kind of cultural and social context a serious way, right? Which sounds obvious, but in some ways it really isn’t right? Even within the crypto space, I feel like a lot of people insert in their models of “Is Bitcoin going to beat governments?” Or “Are these things going to be censorship-resistant?” They tend to look at it purely from a technical point of view, and they basically are kind of implicitly assuming that governments are going to try as hard as they can. And the crypto space is going to try as hard as it can. And it’ll be a battle and one side and that person’s preferred side is going to win. But the reality is that governments are not trying as hard as they can.
And a big part of the reason why is that government is not even so much an entity as it is a battlefield, right? And like what are the soldiers fighting on the battlefield? A lot of it is just the cultural movements and a lot of the success of cryptocurrency and blockchains I think really have to do with the way that they have kind of interplayed with a lot of the important cultural trends of the last 10 years. Including things like people’s distrust of financial institutions after 2008, I think people’s distrust of centralized tech companies after 2020 is also going to play a big part. Also, just another fascinating thing, I think, is one thing that surprised me is how cryptocurrency managed to appeal to a lot of people who would not normally think of themselves as libertarians.
And that’s something that I think did end up even blindsiding a lot of people. And the reason why that happens has to do with kind of very deep and specific aspects of how people think and kind of how people think ideologically, right? A lot of people think of, say authoritarians, for example, as just people who hate freedom and want to restrict things. But the reality is there’s lots of people who are in favor of very specific restrictions or even in favor of restrictions that benefit their own team. But they’re very easily flipped to being very pro-freedom when they know it’s their own team that’s being threatened. Or even when you just kind of take things out of the cultural context of what should the governments do and into the cultural context of how should technology work?
So there’s a lot of these kind of very subtle effects that determine, whether blockchains and some of the ideals behind blockchains that kind of succeed and fail. And these are kind of very subtle properties of how humans think and even how humans interact with each other are just extremely important in a lot of ways. And the reason why they’re important is they just determine that the effectiveness with which people can coordinate, right? Humans are naturally very attuned to a kind of social trend and humans have a lot of motivations that have to do directly with what position they have within social trends and contexts that are made up by other people.
And this is just a space that the blockchain and cryptocurrency space is going to navigate well. And if it navigates it poorly, then I think blockchains will be stopped by governments, or they won’t be stopped entirely, but the amount of usage can easily be more than 90 percent lower than it otherwise would be. But on the other hand, if blockchains can successfully show to a kind of large enough coalition that this is valuable, and this is a good thing for the world, then they can be very successful. This is just something that the space needs to have a better understanding of and take seriously.
Naval Ravikant: Yeah. I think there’s a lot of good points you just made. One I like is that government is not an entity or an enemy on the battlefield. It may just be the battlefield that all of these factors can kind of win simultaneously. I think you made this point in your blog in one place where you said that in 2020, big government won, big social media won, big centralized applications won, but decentralized also won. So you can have multiple winners. These aren’t necessarily either or you’ve also made an argument in one of your blog posts, which is also beyond the scope of this podcast. But I think it’s worth digging into for people interested in game theory, where you basically point out that a lot of the toy models that we consider when we’re evaluating how these things will end up have a so-called Nash equilibrium.
They have a solution in game theory because a lot of individuals making decisions independently, but because majority coalitions rule and people can collude, or they can form coalitions that you end up in these unstable cycles where you a majority win one round, and then the definition of the majority reshuffles and then they win the next round. And so we see this in politics where it seems like, okay, now the Democrats are in charge forever. Oops, no. Now the Republicans are in charge forever oops, no, now the Democrats are in charge forever again, and subtly underneath what’s going on is a definition of Democrat and Republican is unstable. They’re just coalitions that are being formed and reformed as needed. So yeah, these are lots of great thought-provoking points. I’d really love to touch base with a Vitalik who’s 37, the ripe old age of 37 out of his thousand-year Methuselah-like lifespan and see where you’ve gotten to.
Tim Ferriss: So Naval, I don’t know if you have questions remaining. I really just have one question, and that is a pet curiosity of mine. It’s really the language learning. So you have studied quite a few languages. I looked at a clip of you answering questions in a Q and A at some point, I don’t know the year in Mandarin. And I was very impressed. I went to two universities in China and [Tim says something in Mandarin.] So I wanted to ask, if you could give advice now, having tested many things, used many approaches, for someone who wants to learn Mandarin, what would your current recommendations be to them?
Vitalik Buterin: Sure. So for any language, my usual approach is — I think at the beginning, you do need some kind of explicit program. So one thing that I’ve used is the Pimsleur podcasts. So that’s P-I-M-S-L-E-U-R, so it’s just a series of these 90-minute — sorry, 90 30-minute podcasts or 2,700 minutes, or about two days in total that, you’ll listen to one of them every day and they just help teach you the language from nothing up to some very basic level over the course of these 90 episodes. So you start from that, but then even after that, you don’t have nearly enough to understand anything. So from there, sometimes you can find other podcasts, and eventually you graduate to just regular podcasts in that language.
So things that are not even optimized for language learning. Well, at the beginning, you do want to find resources that are optimized for learning. Flashcard apps have helped for Chinese specifically for memorizing the characters, or at least the first 500 or a thousand or so. And there’s plenty of flashcard apps.
They’re all about equally good. And then once you kind of get past some level, then you get to a level where the best way to get even better is to just talk to people. Another kind of path that works somewhat at the beginning actually is if you just go into a city and you just start by reading various signs on the street and you try your best to just understand what they mean. I mean, if you see a word that you don’t understand, you’ll look it up. That’s often useful. I also use Duolingo as well. That’s been helpful in some cases. So it’s just a combination of these techniques. And you have to — when you start it’s difficult, and then when you get past some points, you get to a point where you can just kind of level up just from talking to people from there.
Tim Ferriss: Yeah great advice. And I’ll just add to that Google translate with image translation can be an incredible savior in lands where you don’t understand the orthography. So, in Japan, my brother doesn’t speak Japanese, but we traveled there and he was able to more or less accurately translate kanji, hans, and the Chinese characters using Google Translate — it was remarkably accurate. It’s improved a lot. And as I understand it, another thing that you’ve done is watching — now I’d like to clarify here, is it watching films in other languages, or is it watching English language films with subtitles in your target language, which is also something I’ve done.
Vitalik Buterin: It is watching films in other languages. Sometimes with subtitles in English.
Tim Ferriss: Got it. Thank you. Naval would you like to wrap up, would you like to —
Naval Ravikant: No, thank you. Thank you Vitalik, it’s really been an honor. I think along with, Nick Szabo and Hal Finney and Wei Dai, and a few other very influential people, and Zooko and so on, you’ve just been incredibly influential in the development of blockchains. And I believe that blockchains are the third wave of the internet after the web and mobile. And they’re quite fundamental to how the internet does and will operate in the future. And you’re actually you’re probably the youngest one of that group. So you’re going to be involved in it for hopefully a very long time. And it’s going to change computing as we know it, I’m betting on it. I know many people are. And so thanks for your work and thanks for taking the time to help bring this to a broader audience.
Vitalik Buterin: I think I’m not even the youngest already. I mean like Hayden from Uniswap is even younger than I am. And you know, the Uniswap treasury has more funds in it than the Ethereum Foundation treasury. And so this revolution proceeds fast, man.
Naval Ravikant: Yeah. When I was first starting out my first company, I remember I was 25 and CEO and company was valued highly. And the CTO of the company, he was in his mid-thirties, he said, “Huh.” He said, “So you’re used to being the smartest young guy in the room, right? Just wait till you get old.” And here we are. Thank you, gentlemen.
Vitalik Buterin: Thank you.