EB58 – Vitalik Buterin: Ethereum, Proof-of-Stake, The Future Of Bitcoin

Transcript

hello welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian cuccio and my name is Brian prevent crane so we're here today with a man that pretty much everyone I will know in the Bitcoin space who is a vitalik butaran of course you uh no vitalik as the founder of ethereum mainly he also used to be a writer at the Bitcoin magazine a while ago and for those I'm sure most of you will know ethereum as well but if you don't we've done two episodes before on that one with Stefan 12 a very long time ago and one with with Gavin wood just when the Easter

sale started so thanks so much for taking the time today vitalik yeah thank you [Music] um so perhaps to get started we're not going to spend too much time sort of talking about what is ethereum but uh can you briefly run us through maybe briefly what ethium is and then also how it has kind of revolved from from the time when most people heard about it yeah so originally when I came up with the idea of behind ethereum last year in November I was I'd actually been working on some of the other crypto 2.0 projects where we they were calling themselves crypto 2.0 2.0 back then but this uh you know there is literally sort of meta

layers on top of Bitcoin there are these different colored coins projects and um and I saw that there were a whole bunch of projects that were trying like starting to like stack up different features they were trying to use the blockchain for other things so there were projects that were trying to like do Financial contracts on the blockchain there were people trying to do a registrations on the blockchain and like they were trying to you know make the platform more and more power more and more powerful and uh I the thing that I noticed at the time is that you know this idea of just continuing to add and add more and more protocol features ultimately it really doesn't it's fundamentally limited right it's uh you know it's okay you come up with 60

different features here's 60 different things people can do with the blockchain that's it what if someone wants to do thing number 61. that needs you will upgrade the protocol again and so the realization that I made is that the best way to move these kind of platforms forward and make them more useful is by adding in a programming language so instead of having a lot of features you have no features instead you just have a programming language and that programming language has the ability to control money and to control a database and then people can do whatever features they want on top so initially ethereum was meant to be actually a meta layer on top of primecoin then in January it sort of migrated into being its own

independent blockchain then so you know it's a blockchain that would have that has this sort this sort of uh mechanism built inside of it where you account you have a special type of account called a contract and contracts are actually controlled by code that lives inside of the system um then over the next few months uh gav Gava came up with uh this idea of well I guess gav and Jeff together sort of keep up with the idea of you know having this ether browser which has a client for ethereum it's kind of like in interface inside of which you can view decentralized applications basically

exactly the same way that you if your websites inside of a web browser then we had this idea of having you know two other protocols that would work and that would work inside of this ether browser which would be called whisper and swarm whisper decentralized messaging protocol swarm kind of decentralized file storage versus data storage um well more fast storage and what was the idea uh why was it for necessary to develop a browser because it I mean this is such a barrier right if you if you wanted people to adopt it I mean I know you'll be able to use it through normal web browsers as well right so there's uh three Alternatives that we had well

really four Alternatives one alternative is to have uh a uh either an add-on or a web page so we're kind of like blockchains that in for kind of like crypto kit where basically you know it's all inside of a browser and people just have an ethereum client and you know you could do clever tricks with iframes to kind of uh you know still have this aspect where you could have decentralized applications written in HTML and JavaScript and what kind of work inside and it would have a browser window inside of a browser window that's actually a route that we are developing like we are going we we do have two people that are kind of you know dedicated to this idea to the idea of having that kind of JavaScript clients and people who want you know

just a really lazy ability to access if your information inside the same browser as everything else will have that ability second choice is writing a plug-in so kind of like flasher Java um uh we weren't really interested in the choice again in part because you know nobody on our team particularly knew how plugins worked um in part in part because it's just a I mean it's kind of a halfway it's kind of a halfway house solution that you know has some of the benefits of one approach but some of the some of the and some of the costs and some of the benefits and some of the costs of the other approach and we decided that having an independent browser is a

better option because it lets us do a lot more to create an environment that specifically tailored to these kinds of applications so like one example is adding in a permission system because you know with dapps you really need that like basically kind of built almost built-in accounts the ability to like really control exactly what what dapps can and can't do to you know whatever accounts you have on the blockchain um it's the ability to know just potentially eventually add in like other other ways of writing daps so you know they don't have to be in HTML and JavaScript like we want to support Standalone applications as well so how would you support those Standalone applications on mobile

platforms do you envision uh development Frameworks for IOS and Android for instance yeah we are going to have an ethereum library for IOS and Android I mean at the very least you could probably take our JavaScript code and and pour it in already but you know it's obviously going to be slow eventually we're going the next version of go as it turns out we'll have a an option to well we'll have basically Android compatibility so it will be possible for us to like write in a mobile client um yeah so uh just for those I obviously there's a nice tutorial as well or sort of a web demonstration on

YouTube of the ethereum browser um any kind of the browser it's missed yeah exactly so we will put that in the show notes as well so people can have a look at it to be honest I I have seen it sort of demonstrated it does look really cool so I I do see the logic especially because we are talking about such a radical shift in the way applications work and they're consumed that they distributed and they're paid for so it does make sense to me to sort of develop it from the ground up but also at the same time it illustrates very well how the project of creating I think a new crypto application platform has become so huge

you know it has taken on so many New Dimensions like oh we're gonna have to do this from scratch as well this from scratch as well yeah so touching on these applications I mean recently you had a you guys hosted a a hackathon in Berlin it was called Defcon Brian you were there I believe right yeah I would say for parts of it yeah so what are some of the interesting sort of projects that you saw emerge that uh at Defcon insurance what do we sell that are merge a Defcon um I guess like basically Defcon was really an event for like everyone on all sides of the pro of the of the project to kind of show off what they were working on so

like on the one hand you know we had Alex Van uh Amanda Sancho off uh missed or you know what he was working on with me that's what it would look like what it would what it would be with the you know with the with the permission system built in with uh how sampled apps would look inside inside of the browser and Jeff talks about that as well the guys from Poland that are doing a virtual machine talked about the virtual machine um vladen Vlad and Ike were doing for mistake talked about proof of stake and so forth um most interesting things that are probably started well I guess uh solidity which is the contract programming language that gav and uh you know Christian reisweiner are working on

so that's I mean they got some pretty serious points for that you know they're trying to like make a language where contracts would be first class objects objects inside of contracts would be first class objects and like it even has like a built-in formal proof system so it would have all these sort of features that are specifically tailored to you know the specific fact that this is a language where different people are writing programs and they kind of all talk to each other and you and you really really care about code like code being absolutely correct the first time um I mix the integrated development environments we saw the initial plan for

that you know you mentioned something interesting there contracts as objects is that right yeah I never really thought of it that way that's an interesting way to look at it yeah you know the word contract is kind of really bad terminology at this point uh to be honest because originally the reason why I called them contracts in ethereum is because when I was working on uh mastercoin before that I had been developing it was about financial contracts and specifically it was about contracts for difference and the whole idea of you know you having a programming language control money actually came out as the result of this uh of this approach of trying to take

this the idea behind contract for difference and basically like generalize them and you know allow basically allow people to bet on arbitrary mathematical formulas and so it just kind of the name just kind of stuck but really you could it's almost more accurate to think of them as being agents like kind of you know like her style autonomous agents right yeah um I guess some yeah something you could call them objects they call them accounts sometimes actors um so kind of debug so or listeners don't know what sort of the main the main topic of this episode we had in mind and what we really want to dive into so and perhaps

let's let's get started with that and just to give some some brief it seems like judging from reading your blog posts the one thing you've spent the most time on you know has been consensus systems right so we're talking about proof of work proof of stake uh what the right proof of stake implementation is that's also one thing I came away with from Defcon is just how complicated proof of stake is and how many different options there are and different possibilities and the other thing is scalability so we will really dive sort of into that and I think it will give us a nice window also in the future of cryptocurrencies um so perhaps get started off can you

talk a bit about why this is the area where you focus on during the last year so you know I've been working at consensus systems and I've been working here trying to figure out first you know what function they serve what would people want them for and you know specific and how under what circumstances they can become something that people actually adopt as you know a fabric for substantial portions of social interactions so the problem I mean two problems that I see with Bitcoin are number one number one proof of work is expensive so be you know was basically what Bitcoin is doing is it as I've said a couple of

times it's paying 600 million dollars a year that's you know that's the cost of of all of them of all the mining hardware and all the electricity roughly six thousand million dollars per year on a five of ten multi-sig because you know ultimately there is maybe about like five or five or ten big mining farms and mining companies that that can control the entire the entire network with especially with Asics out so you know we're paying we're paying a really huge amount it's this incredibly inefficient protocol that basically involves what miners literally competing to see who can waste the most resources the fastest and on the other hand it's not getting us all that much decentralization because we have this Asic specialization problem so

with proof of work I've been trying to at least solve the Asic problem so come up with a proof of work algorithm which is CPU friendly and I mean we've been looking through a whole bunch of approaches around that so initially we took the memory hard route which is you know trying to make something that's kind of like script but better and read I invented this algorithm called dagger that basically allows you to create a an algorithm which is memory hard to compute but memory easy to verify which is important to make your memory cardless hardness scalable because you know if it takes a gigabyte to actually perform a round of an algorithm then the problem is it also takes a gigabyte to verify it and also takes a billion steps to verify it which is completely

non-viable especially for like clients so that's the first step uh so then from there cruel made his post pointing out how a dagger is basically vulnerable to Shared memory attacks and so from there you know we went into a bunch of different routes at first we went into blockchain based proof of work which is this idea of like running contracts on the blockchain as a perform then we did this random circuit approach where basically with randomly generate programs and the idea is that in order to like it because the random program generator can conceivably create any kind of program the computer which would be

like you can't really specialize for it because you're sort of specializing for everything now it turns out that like the problem is that it's turned out to be very very hard to actually come up with a sort of way of generating random programs that rough that actually match the kinds of programs people would realistically run on CPUs and so you know there's Asic problems around that so the thing that we finally settled on is this idea of i o bound proof of work so the idea being that the primary limiting factor is not computation it's input and output on memory so it's an algorithm I mean it actually so the algorithm that we took the idea from is called Hashimoto it's

uh this thing invented by thaddeusia which is it it actually does two things at once the first thing is it's i o bound but the the data that the the data set that you have to fetch from in order to do the computation is actually the blockchain so it also a simultaneously forces every node to every minor to be a full node so I came up so the I came up with a version of Hashimoto that I'm calling dagger Hashimoto which kind of separates out the it actually uses two data sets it uses the blockchain as a data set once and then it uses a dagger generated data set another time and the point of that is that Hashimoto by itself is not really like client friendly to verify

because I want clients are not going to store the entire blockchain so it's the but Diego sets on the other hand they're very easy to it's very the whole point of a day of dagger as a as a data generating algorithm is that it's very easy to like generate individual nodes at the bottom of the set so I'm sort of combining those two approaches and figuring out something which is simultaneously i o bound and has this uh like like client property that you know you know um so um are there any centralization concerns with every Miner having to run a full node partially it increases centralization

but partially it reduces it I'd say because so the problem is that for from a centralization standpoint okay you're not going to be able to mine on a smartphone fine but the problem from a uh or the benefit from a centralization standpoint is that because every Miner is forced to be a full node first of all it actually reduces the amount of speed up you can get from having an Asic and the reason is that like if you look at the way a Bitcoin A6 work none of them actually have Bitcoin notes on them that's part of why they can be if they can afford to be so efficient like any sort of all Outsource the functionality to a centralized mining pool so the way that this so This proof of work algorithm

forces every phone every minor to actually you know maintain the ethereum blockchain sort of reduces the benefit of doing that and the second thing is that one of the problem the problems that bitcoin's having is actually full node centralization it said there's the number of full nodes has actually been steadily declining for a couple of years and it's like under 7 000 right now and so you know we if we can just sort of do this to artificially force a number of full nodes up then it uh you know has a beneficial effect from that standpoint so and another Advantage I guess that's often been touted of uh proof of work is that because you you can only man efficiently on A6 there's no way to mine with botnet

or stone computers so is that a concern that you will be able to mine with partner so yeah I mean it's an issue my my opinion is that it's overrated uh two reasons so first reason is that if you look at the kind of Hardware that is the botnet tends to in fact I mean first it's generally you know really old laptops running Windows XP so you know 100 000 botnet computers are really worth only like ten thousand normal computers and the second thing is that if you take over a computer and then you still need to like keep under you know some level of resource utilization like you need to keep under you know 10 or 20 otherwise you get noticed so really you know it's

like 50 to 100 botnet computers are worth as much as one normal mining rig so that's one argument and the other issue is that if botnets actually are effective then I think legitimate botnets are going to out compete illegitimate ones and what I mean by legitimate botnets basically is companies that are developing software applications will build will build in miners as a form of monetization so you know if you download some particular thing like you know if like say if you if you download I don't know some antivirus package then you know it would scan your computer for viruses but then it would also say my you know mine on your on your computer and it would

carefully calibrate it to mine only when it's uh not interfering with you know your battery life or your other activities and it could even give you like a cut of the profits could we so can we also extrapolate that to Hardware like embedded Hardware such as smart refrigerators and smart washing machines um embedded Hardware probably not good well at least not in the specific case because uh well the whole point the whole point of CPU mining is the reason why it's so decent it has this potential of being so decentralized is that everyone has some quantity of computing power to them to them that's basically free right so computing power ups up to some constant up to some value and you only have to

pay for the electricity you don't have to pay for the hardware so that makes it cheap and then going Beyond and you have to you know that's the point where your first computer is up to 100 and you have to pay for more electricity and more Hardware so it's just a really weird sort of super linear cost curve that you're pretty much very rarely see in economics so you know like that's basically why you know you could actually realistically expect that home users will be able to mine and they're not going to get out competed by even specialized data Farms so the problem with refrigerators is that they have no reason to have Spirit CPU capacity by default and so if you put miners into them then well you know not it's not going to be uh like they'll have to pay for a hardware and

electricity yeah now although now the one argument that I will grant is that for heating devices there might be a legitimate case that for heating devices electricity it's the electricity that's free so actually look this is like the one potential salvation that Asic mining could possibly have is that you know maybe just maybe it makes economic sense to put to put Asics inside of every home heater in which case the whole thing actually will be decentralized again but you know um yeah yeah of course then I Foundation now now is that you need to be able to plan ahead right something like a heating device it only makes sense if you know

you can mine with that for five years and you have some expectation of the profit yeah and that's definitely not going to be there in the short or medium term maybe in the long term right right well I mean the thing is that it's uh something that could happen right but it's not something not something that we can necessarily count on so I mean I really don't know enough home heating economics to say exactly how far and how viable an Asic as a home heater is and I guess the immediate problem is that they're kind of a lot more you know is it an Asic is way more expensive than just you know a box that was that sits there and wasted electricity so yeah yeah you know might be cheaper to

just use boxes don't wasted electricity instead if you have heating but yeah we're all good go either way foreign well before we go on so we're gonna move on to um proof of stake in a second because that's kind of I think where it also gets really interesting to talk about that but uh before uh we'll just briefly do an ad about shapeshift yeah absolutely so I mean if anybody out there has ever tried to buy altcoins you know that it's probably very complicated and cumbersome and one of the reasons for that is because most uh most people that want to buy altcoins have to go through exchanges so you have to find the reputable Exchange sign up give them a bunch of personal information

send Bitcoins to that exchange and then place an order wait for that order to be fulfilled that just takes a long time to do and uh and it's just a hassle so um there's a company that uh we've been working with for the last couple of weeks called shape shift and shape shifts offers an alternative to that and actually last week Alan Scott of uh of cointelegraph came up with this interesting uh interesting analogy uh which I'm gonna use and the shift shape shift is much like Google Translate for currencies for cryptocurrencies thank you so actually we're going to demo this because that's how easy it is we can actually like demo this within the

within the show uh let me just share my screen here there we go all right so I've got shapeshift running here um and you'll see so on the right on the left hand side I've got BTC and on the left hand side I've got light points now all you need to do really is just enter your Litecoin payment address and a specific amount and hit start and then that will generate um an address and a QR code to which you send money to and in just a few seconds shapeshift will send litecoins to your account so I'm going to get my Litecoin address

all right let's see here oh I don't have my Litecoin address handy that's a shame because you probably should have prepared for this right Brian yes um well but well let's let's do it next time we'll do it live again I don't give my Litecoin address yeah sure yeah you can send me in the chat I'll uh I'll add it in right now but uh no so essentially how this works is you just send uh the amount of Bitcoins that uh shape shift will uh specify uh to the address that it specifies and in just a few seconds you'll get Litecoin on your

account okay Fidelity just sent me a Litecoin address thanks Italy all right so let's say we want to get I don't know one Litecoin how much is that start okay so here it says within the next 10 minutes I need to send this much Bitcoin to this deposit address that I can do the demo went surprisingly well last week let me do this that's too late I sent it already okay so now we're waiting exchange and in just a few seconds vitalik will have some Litecoin in his account laughs [Laughter]

QR codes are really nice yeah well if you hadn't been so fast you've gotten the Litecoin for for the show but so now it's a wedding exchange and there you go so that took about 20 seconds and we didn't have to create any accounts give a shape shift our email address or wait for orders to be fulfilled so the the idea is to allow you to buy and sell litecoins quickly and easily and they accept uh bakes up the whole bunch of uh of a light of uh altcoins so Litecoin peer coin Dark Coin Dogecoin name coin feathercoin black coin and who knows maybe someday ethereum gems yeah all these uh app points that are coming up so give shapeshift a try go over to shapeshift.io it's fast and easy

and uh we would like to thank them for their support of f Center Bitcoin absolutely so let's move on to uh proof of stake so I you know proof of sake is one of those things I've been sort of wanting to look into it for ages I was always like I always want to read about proof of stake and really understand how it works and I somehow never gotten around to it and you know recently I've more and more I started to think about it a little bit about it I still feel I have a a fairly poor understanding of proof of stake I did actually read one of your vitalik one of your articles like really old article that you wrote for a Bitcoin magazine uh just yeah it was very uh very clear very

understandable but of course things have changed a lot so can it briefly explain to those who don't know about proof of stake what proof of stake is mm-hmm so proof of stake basically I mean it is a consensus algorithm much like proof of work is a consensus algorithm and the point of a consensus algorithm is to have is to have a way of updating the blockchain such that you such such that it's it's very it's very hard so it's a revert essentially so like you you want to avoid situations where you know you know you you have a little blockchain it's growing blocks are being added to it and

then some attackers just is able to create a new blockchain that like goes uh that starts off at some points you know 100 blocks back and the attacker creates 200 block creates like 200 blocks and then every and then everyone switches off to the attackers chain so it reverts history so the point like the point of a consensus algorithm is to make it expensive or to restrict block Creation in some in some fashion so uh so that you can't uh uh so that people can't just you know create Alexa at whatever rate they want for us starting from wherever starting from wherever they want and and also try to like inside device people to work on continuing to like expand one particular chain so you know some time when we like moves

forward it doesn't jump backward um so proof of work does that by making each block computationally hard to produce so you know every time once a block gets released there's this math problem where if you can come up with a Blog based on based on the Block that already exists such that your blog has a hash Which is less than like two to the 176 or whatever whatever some really low some really low number it compared to compared to the numbers that hashes usually take then you then you then that block is valid and so level like that blog jumps out onto the network everyone receives the block and people start producing the next block from there the idea behind proof of stake is that

instead of the limiting factor being computing power the limiting factor basically a stake so stake being you know coins themselves so the simple way to describe the really simple uh sort of naive proof of stake that people were thinking about three years ago is this idea that you would have every single account would have some would have a chance per second of of being the accounts that would that has the right to create a block at some particular time and that chance per second is proportional to how many coins that account has so you can think of every account as kind of being like a simulated mining rig where it's uh where the power of the simulating

mining rig is proportional to the uh the the amount of coins in the account so like that's basic you know that's basically you know the the idea behind proofer stake it's some kind of way of limiting block creation where the base worth your probability of being or the amount of influence that you have in the block creation process is proportional to how many coins you have got a question about how this actually works because we've talked about a proof of stake in a sort of theoretical sense a lot or you have in your blog post but in actuality when you're mining with with steak with your coins do all of your coins have to be in one address or can you mine with multiple addresses how does that work yeah I mean why can't you

mine with multiple addresses I mean any system is going to let you pretend to be multiple people um yeah basically like you can if you have an account and that account has coins in it then you can then there's you know there's some option that you'll be able to turn on in your clients and that option will basically will look for opportunities when you have the ability to when you have the right to create a new blog and if you have the right to create a new blog you'll end up creating a new blog so if you have 10 coins then let's say so let's say the total number of coins in the system is a thousand and let's say you have 10 coins and it's a model and it's a model where it's done on a sort of block by block basis then the

way you would expect it to work is that in accounts with 10 coins once a bucket gets created and it comes with 10 coins would have a one percent chance of being the account that gets to create the next block right so or it could be you know it could be per second as well so you could have a one percent chance of having the right to create a block during the next interval so then that's so you if you have only 10 of your coins in one account then you know that's what you have you just keep your client keeps on waiting one percent in one percent of all the interviews you get lucky and your client pushes out a new block onto the network if you were to split your 10 coins up into two accounts then each individual

account would have five coins each individual accounts What Happens 0.5 chance and so basically the same thing what happened but so here you have a you know one of the advantages so the main advantage because of mining pool right is that it decreases the variance of Mining and obviously here you would have a huge problem with small miners that or small coin holders not because of the high variance they also may never mine a block yeah in every system has a variance problem um so in proof of stake you theoretically could have stake pools in fact you even could have decentralized stake pools and decentralized stake pools are

interesting because like the way I see it is that you know I think there are decentralized Staples are actually you know perfectly fine and natural thing and uh the in fact there's actually a market incentive for people to come up with stake pools that are more decentralized because which is the model that I've been working working on since uh or that I came up with in January and I've been working on ever since if you're if you end up you know doing something bad like if you end up signing two blocks at the same height or if you if you know if you want or if you end up mining on the wrong chain and so forth then you get then a proof that you acted in an incorrect way can actually be

reincorporated into the blockchain and then that can punish you by taking away your security deposit so if you were were to give your coins if you were to allow an insecure stake pool the right to vote with your coins then that insecure stake pool could theoretically end up in you know it could theoretically end up doing something bad with your coins at which point you'll lose your deposit until your coins will be gone so you're right so your incentive is to look for stake pools that are good and by good that means you know secure and secure basically means you know not vulnerable to one particular party but you know being decentralized is just the simplest way of doing that so so the slasher algorithm that you

that you wrote is a way to address what we call nothing the stake problem so perhaps could you just explain what that is and okay and also perhaps uh give some of the uh uh some of the the challenges that remain to be solved with uh even with this algorithm that you've developed sure so the idea why nothing at stake is this so let's suppose that you have the main blockchain is chain a then an attack so a chain a comes along it's growing and then an attacker starts off the attacker makes chain B and chain B is trying to you know reverse some transaction or whatever so in mining you would have so you'd have four choices choice number one is you would mine on neither chain so screw away screw B I'm just sitting there Choice two is you

just line on a choice three you just mine on B Choice four is the line on a and b at the same time so if uh so it's just sorry when your money on Ambi at the same time you're putting half of your hashing power yeah exactly when you're mining you have to split it you only have one unit of hashing power you have to split it up so if let's say you if because Chinese ahead the probability of chain a winning it's let's say 90 then if you mine on either chain you get zero expected Revenue if you mind on chain a you get 0.9 expected Revenue because that's 90 chance of getting a block if you mind on chain B then you get 0.1 expected revenue and if you mine on both chains then it's going to be 0.5 because

you know there's a hundred percent chance that either of these that either of those blockchains is going to is or not one of those two blockchains is going to is going to make the next block and but you're only mining with half power on that particular chain so because you're splitting your mining power in half the half option is exact is going to give you exact a return that's exactly halfway between the good option and the bad option and so it makes sense to go with a good option and so because of that there was this rapid convergence property where if if one chain has an even slightly higher chance of succeeding everyone's incentivist in line on that chain and so rapidly converges to being the only chain so proof of stake you have a problem the problem is that there's you know you might not neither chain expects the

revenue zero mine on chain a expected Revenue 0.9 mine and chain B expects Revenue 0.1 but if or rather vote on chain a vote on chain B but if you vote on chains A and B at the same time then the problem is that you're not actually split you're not actually splitting up anything because you're mining on chain a with coins on chain a and you're mining on chain B with coins on chain B so you're actually getting both at the same time aren't aware of the state of the other so that exactly is what allows you to do that okay yeah so your expected return is 0.9 from this one and 0.1 from that one so it's one and so rationally speaking everyone is going to vote on every chain so slash error is an algorithm I uh came up

with in January and what it so last year does is it says okay we are what we're going to say is when you mine a block then you are not going to get your reward for another 3000 blocks now if you get caught mining on chain a and chain B at the same time then What hap what happens is that anyone in the networks can create a transaction and what the transaction is is just a proof of Mind of a proof containing the signature on chain a and the second node chair and chain B at the same block number and then they can submit that as a transaction into a Blog and then that deletes your signing

reward and it also gives a third of the signing reward to whoever submitted the evidence as a bounty so the idea there is that you're sort of explicitly punishing this chain a plus b approach and so you're as a result the chain a plus b you know approach has a return of zero so since then so one of the problems that swatch that slasher 1.0 had is this side is that in order so the problem is that if you're voting If you're sort of if you're doing this sort of a double vote strategy then chances are if you're not going you know chances are you're not going to have an opportunity to mine on either chain because it's you know it's a relatively low probability thing it happens rarely so even if you choose the strategy that

you're going to vote on a and you're going to vote on B most of the time you never get an opportunity on both you either get an opportunity on one or you get an opportunity on the other so even if you adopt a double voting strategy most of the time it's still going to look like single voting because you know it's probabilistic you only see one so the way that's last year in January solved the problem is it also pre-selected voters so you know that's exactly it slasher so if you scroll down a bit um actually scroll a bit way down there we go I'll pop up see the Four Points so yeah um so Point uh

number uh number two is that you know or points number one and two which that you notice that the uh the signer for this the set of signers or or the for block number three number n plus three thousand get picked during block end so you really really you pre-select who the voters are going to be and the points of that yeah um so just yeah no no uh keep going yeah so the point of that is that if a fork starts the voters on chain a and on chain B at the same number are actually always going to be the same so you always you know you can either vote on both chewing chains or you can vote on no chain so if you're double voting then you actually are voting on both chains

as you actually will get caught and and so it makes sense to a single vote and just stick to the blockchain that's uh you know that has a high probability of winning cool so that seems like a a pretty elegant solution are there any problems with that um so there's there's a small problem and there's a watch problem so the small problem is that if you select voters 3000 blocks in advance then you have this extra denial of service vulnerability and you have a bit of a collusion vulnerability because you know you the set of the set of Voters for a Blog are going to be known like many hours in advance and so if there are

known many hours in advance then you know you know first of all they might have the ability to like get together and all extort the entire network and say okay we're not going to sign unless you give us a million dollars and the second problem is that they become targets for denial of service attack so both of those just one question how would the miners collude with one another how would they come into contact I mean they all have I mean it's going it's public what their public keys are right and especially especially with ethereum because you have whisper you know use you'll be able to send a message through that public key directly and they'll see it um so the way you solve that problem is I mean there's two approaches one approach

is this is a tender bin strategy which is you just say okay everyone is going to be assigner at every block um it's convenient um it actually I mean it actually also resolves the double voting problem because you know everyone votes every block it's not probabilistic but it has this uh issue that you know you need a really really huge number of signatures for every blog and it's going to be expensive to produce expensive to validate lots of data so the other approach is with the approach that I'm calling slasher 2.0 and let's watch 0.0 the idea is that instead of punishing double voting you're punishing voting on the wrong chain so if you vote on a then if B wins then your vote then you know

even if you just voted on a then your vote on a to be put into vote your to be put into B and that takes away or it's closet so that's all and that generally solves this little problem because it actually only lets you pick voters like one or two blocks in advance like there are some other complications like how do you have a random number generator inside inside of proof of stake and uh you can there's some approaches for solving that there's the NXT approach which sort of which basically uses uses absentee voters as a source of Randomness um we came up with an improved version of that approach based on low info something called Low influence function there's also you can also actually take the slasher

1.0 route there there was like a built-in proof uh there's a a built-in cryptographically secure approvable Ransom number generator and selection 1.0 and you can actually take that that technology and compress it down to five blocks and make it work so the smaller problems you know they have Solutions the bigger problem is okay so you say that if you vote then or if you if you produce a block then you get your reward after some number of blocks so and before that if someone comes up with proof that you cheated then your reward gets taken away problem what if what if someone starts what if you start a fork or what if someone starts a fork that's so far back in history that everyone who voted at

that particular time already got already got their coins taken out of the deposit so the deposit does so the deposit doesn't exist anymore they have their money they have their money and there's no way there's no way to punish them then once again there is no incent there is no incentive for them not to sign on you know every attacker's Fork so this is so this is called the long range attack problem so the issue is what if you have a fork that starts really really far back like it could even be as far back as a Genesis block you could have a situation where someone goes to each and every one of the participants in the currency's Genesis sale and asks them for uh for you know it tells them I'll give you

five dollars for your private key so all the participants in the USA sale they're going to be fine giving up the private key because you know they have the ability to even if they're still using the private key they have the ability to just switch to a new one right and move all move their coins over and then they'll say oh sure you know it's my private key I'm not using anymore here you go thanks for the five bucks so okay attacker pays five bucks times a few hundred take you know has two-thirds of the coins at the Genesis sale and then the attacker has the ability to basically simulate an entire history which is equivalent to which is a distinguishable from a legitimate history and then that uh and then that blockchain actually works even more legit than than the normal one because the attackers known as they're online

100 of the time so that problem like you basically you can't solve the problem crypto economically like actually try like locking my head against solving the problem and using some clever economic tricks like transactions that's proof of stake and I tried it for two months but eventually I figured out you know it's fun it's fundamentally and resolvable and so that's when I came up with this concept that I described in a recent blog post which is called weak subjectivity so the idea behind weak subjectivity is that instead of uh so it was proof of work it's a consensus mode that you can you can call it objective so that means is that if some new node joining the network sees the current set of blocks

that have been produced that new node will be able to come to exactly the same conclusion as everyone else about what the valid block is because they just check you know which blockchain has the highest total proof of work on it so with proof of stake I'm arguing that in order to make proof of stake work you need a consensus model which is legally subjective so in order to find weekly subjective I guess so strongly subjective would be something like Ripple consensus where you know there is no objective scoring system it all depends on what each individual node's unique node was this right so weak subjectivity is interesting compromise between the two where you basically say that if you are a node and you you have already connected to the network within some period of time in the past so I'm

thinking something like you know three months or you know could be 12 months or whatever then you have the ability then you have the ability to come to the same consensus as everyone else just by seeing the data but a node that is a node that has either been dormant for a really long period of time or I know that's connecting to the network for the first time that node is what it is going to have to basically get a checkpoint from someone so you know either yeah so [Music] I I don't know is I wanted to ask a question that sort of touches on proof of stake from a from a broad perspective and

that's [Music] so Sebastian pointed out he sent me a video the other day and there is a tattoo that you know proof of stake if you explain uh proof of state to someone who is maybe not from the cryptocurrency space and and they say well you wrote with your coins right it sounds like it's very much a sort of a rich get richer scheme right where sort of money controls everything um and you know maybe one could say this is a bit flawed right because who gets to buy a mining Hardware but what is your point of view on that and yeah my point of view basically is that mining that you know mining Hardware is exactly that kind of game so exactly the same

extent um I mean when you think about it I mean it's a buy mining Hardware Hardware which would allow you to mind anything reasonable you you need to be rich I mean essentially you need to have a large amount of resources to buy that mining Hardware so we're looking at the same problem basically just it's displaced another interesting uh way of looking at it and I I'm really curious how this works right so because you can say that with mining even if it it doesn't solve that problem one problem or one effect it has it dilutes early adopters and it creates a sort of a coin distribution right um right

so what are your thoughts on on distribution and proof of stake and that's kind of interesting because the same people the same people that Advocate proof of work are often the same people that Advocate Bitcoins finite supply model um so I mean yeah I do think that a growing you know a growing Supply would be opposite well it is more optimal but the thing is that you know just doing like if all you're doing is you're just having like a sub amount like wasted work basically and you're Distributing coins to people who waste work that's I mean it's basically a make work program it's not really something it's not really a particularly useful way of Distributing money right I agree with

that it seems like an extremely inefficient way of doing it but still so with proof of stake it means basically right if you own like 10 of the coin in the beginning and assuming you keep mining then you will keep owning 10 right because even if there's block reward or not if the coin Supply grows or not if you get 10 of all the block reward in transaction fees it sort of works out the same thing correct um yeah I mean the only the only category of models that kind of get around that is the whole idea of well you know let's have the stakeholders in some you know in or the participants in the network in some fashion decide who to distribute coins to in order to pay for ongoing development so like big

shares debosses probably the one sort of live it or live uh implementation of that kind of a mechanism so I mean that's an interesting set of strategies it could be promising uh yeah yeah aside from that I mean in general I don't think I mean if people are looking for fairness in a galaxy I mean as a matter of cryptocurrency I mean ultimately you know the people that need that the most are like Africa people in Africa that are on one dollar living on one's over a day and they don't even have access to laptop to laptops or A6 or coins and so if we're looking at this as an egalitarian Revolution it's not going to come from the currency issuance it's going to come from the the the fact that this is

technology that massively well we're experience to entry to participating in a whole bunch of systems exactly I mean I think the one thing and you've written about this as well it's but let's not go in there because it's a whole other discussion but if you could verify that you know you are someone is a unique person then yeah you could have a cryptocurrency that just gets issued like let's say in a monthly rate to all unique people and and that could be revolutionary in that way exactly so I I know you know your viewers and the view of many people that proof of stake at least assuming all these things get figured out and it gets tested and it really works in the long run Superior to

proof of work uh so do you think first of all is it technically possible uh that Bitcoin would switch to proof of stake and do you think that do you see any plausible scenario that there could actually be a consensus to that that you know um yeah okay so technically speaking it's entirely possible so I mean it's actually a bit of a misconception that it's the majority of the hashing power that decides who controls the protocol because ultimately you know the if we if we all decide that or you know shot 256 is a bad mining

algorithm and we should instead use shot three and Gavin and duration pushes out pushes out a version of the Bitcoin clients Bitcoin 0.10 and Bitcoin 0.10 says that a block is a blocks up to block number 400 000 are valid if you shot 256 and above to 400 000 they have to use shot three and if everyone downloads that client then once block 400 000 hits even if there's only like four people mining shot three and there's this entire industry of Asic Hardware mining shot 256. you know the fact is that entire industry is going to be producing invalid blocks and the four people that are running shot three are going to be able producing valid blocks

and so the four people that are running shot three are going to win so it really is all about the the users and and not the miners so so the mining industry basically has very little say in mining algorithms or whether or not we I mean we go to proof of stake or any other proof system exactly I'm very happy about it I'm sure yeah miners are going to yell and scream but but I mean that would that that could potentially have some sort of an impact on a broader attack not that's not specifically uh with relation to their business model but what type of impact would that have what type of impacts would what have on

Chrome well I mean the mining miners getting getting up getting getting shafted um a lot of angry people with the impact that's what the impact could be yeah I agree there'd be a lot definitely a lot a lot of angry people um it's yeah hard to hard to imagine you know what exact what exactly the uh anger would materialize into it just uh because you know it's like they just their entire set of Asics your entire sixes you know it's all industry just you know instantly becomes valueless so that's very interesting though you point I wasn't of course it makes total sense if you think

about it but I just hadn't thought I hadn't made that realization that actually if the users are sort of in consensus you know they can just switch over without having the consensus of the the mining no demanding industry do you do you think that's what percentage do you attribute to that what likelihood that's the thing technically it's entirely possible politically it's a bit hard um several reasons number one I think that Bitcoin is uh right now it's still large extent committed to being this you know slow and steady coin that doesn't really you know it's whose protocol doesn't

particularly change all that often and now if Bitcoin wants to have a niche as being a sort of like digital gold 2.0 then that's actually exactly the correct strategy to take you don't want to rock the boat you want to be exactly the same thing and you want to be stable and you know the fact is that as much as much as I think it's a horrible environmental tragedy that we're wasting 600 million dollars a year on useless computations gold mining is even worse because it's people wasting resources in order to acquire gold and on on top of that you have negative environmental externalities so you know I think so if Bitcoin takes the you know takes the the route of specializing in order to sort

of replace gold which I think it should then it probably makes sense for it to just be as conservative as part to be as as conservative as possible so let me just being conservative is pro is just is one aspect the other aspect is that the Bitcoin Community is uh is seems to be to a very large degree dedicated to the concept of proof of work and to especially to the I think a lot of them especially feel kind of uncomfortable about the weak subjectivity idea because like I've actually debated this on forums so many times where I know I argue that like this there's this problem that a new node connecting to the connecting to the network and if I know it's been

dormant by more than one year it has to ask some other node for a checkpoint and I mean it's not going to be a random node you know like realistically it'll be asked you'll be asking a friend you'll be looking up a Blog hash on blockchain.info or you'll just get it from the software developer and a lot of people either see this as some kind of you know centralization which I really don't believe it is because you know anyone can produce checkpoints and other people also see this as being some kind of you know quote subjectivity or even trust which is a you know incredible really uh exactly where it's this really reasonable thing that we're supposed to have at all costs yes so uh it's uh

it'll be a really really a really long road to trying to convince the Bitcoin community that we subjectivity is fine uh probably an even longer road than you know basically just replacing it with some replacing it out right with something they said proof of stake yeah I mean I think one uh one issue is also you know the default is to do nothing right so you'll just click on in the same and then the question is when are you actually going to get to the point where maybe a majority says okay we need to do something it's probably at the point where something really bad happened there are a lot of Alternatives already that are working and the danger then it's just it's going to be too late right yeah like you know what I guess the biggest dangers are well number one what if it you know

okay the thing that will convince Bitcoin to change its consensus algorithm no it's not going to be you know this sort of moralistic arguments about how their waste like six such million dollars I mean that's like it's a problem but it's one it's a sort of you know slow slow boiling type of problem it's not really critical at any point the kind of problem that without you know that would convince them is if there is a 51 attack so you know the two possibilities one possibility is that you know am I a company Mining Company actually manages to get over 50 percent it's hardly possible like I think for Litecoin at some point there actually was one company that had 50 they might still have that now um another possibility is you know there

are back door tricks to attacking proof of work like you know you theoretically it would take 70 million dollars to owe it to like do a double spend attack on bitcoin by actually building the Asics directly but if your attack Vector was to just hack into mining pools was to hack into Asic data forms then I could easily expect you and combination of hacking you know maybe maybe even a combination of hiring a a couple masks to walk into the data to walk into the data centers you know budget so and the reason why that's the case is because like the fundamental I actually

Vlad as I say amphi or one of our researchers pointed this out in our proof of stake panel a couple weeks ago is that the reason why proof of stake is superior to proof of work is because with proof of work the disincentive to be against being malicious is capped it has to be equal to the reward right if you mine on the wrong chain then you get nothing and that's and that's the worst that can happen to you with proof of stake you could have security deposits and so the penalty for doing something bad can be much much higher than the reward and so yeah the reason so the reason why I expect a lot of Bitcoin mining Farms to be insecure is because they have no incentive to be secure you know if they get hacked and if some attacker takes them over three hours

whoopsy too they lost three hours of mining power but if we stand but if we switch to a year yeah so if we switch to a proof of stake model where you have very high security deposits then everyone has a really really highs of incentive to really really care about security for their funds and so the sort of doctoral strategy doesn't exist yeah so of course one one big issue too is that with binding uh you know these people care about the value of this Hardware right it you don't have this like I own one percent of the mining power and you know that sort of correlates to me having one percent stake in the current you know it's not

like that right so um um well it depends actually that actually that is at that point your Breeze actually is the one argument in favor of Asic mining instead of CPU mining which is that you know a Bitcoin if they have a Bitcoin Asic then that Bitcoin Asic is useful for nothing else and so what they actually do all the assets that they're actually holding is actually you know basically a lovers that on the Bitcoin price right but the problem is 10 what is 10 of that Worth right 10 of the mining power it's worth only a fraction of the total value of the uh market capitalization whereas with proof exactly potentially 10 is actually worth ten percent right so yes exactly

um yeah so yeah like that's I I yeah that's kind of you know it's kind of another way of looking at this idea that the disincentive is but it could be much higher than the reward and so the amount at stake is much higher than email being rewarded so if you're interested in these topics uh one good place to to read up on it is on the ethereum blog so all the articles that uh but uh vitilik mentioned the weak subjectivity article and the slasher um the article explaining the slasher algorithm is also there I would say set aside a good hour and a half to read these because you have to read them multiple times they're very complex I mean I have to say I I read them uh at least two or three times before I could

even grasp about 50 of what you were saying so um so moving on so Bitcoin has been uh there's been some critics system with the of Bitcoin in terms of scalability there are some scalability issues um particularly the number of transactions per second can you address those so the scalability I see two I see two problems simultaneously so the first problem is the number of transactions so no right now it's at like two one or two transactions a second and it's already the blockchain is already many gigabytes if it goes up to like 10 000 transactions a second then the blockchain is going to be many terabytes and a number of full nodes is going to

fall down pretty drastically so that's uh one one issue um the you know that basically the larger you know the more people participating in the network the more centralized it gets and in the limit what you have is a system that's basically like the limiting case of Bitcoin right now is basically PayPal because if the whole thing scales up to the point where you have 50 10 000 transactions a second and you're down to one node processing everything then you know that one node basically is PayPal so right that's one issue uh the second issue which I think is makes you very related is transaction costs you know right now Bitcoin transaction costs five cents which is

fine right now because PayPal's fees are even stupider but you know right yeah you know it should not cost you five cents you know the internet of money should not cost five cents a transaction it's it's kind of absurd and you know the reason why it costs like for micro it completely removes all the micro payment use cases it removes most of the non-financial use cases and eventually I you know my my worst fear with the space is that dick was just going to get out competed by a centralized or alternative that's managed by Google so you know once Google once you know The Regulators get the rack together and you know they work with Google on figuring out some kind of uh

digital currency which is you know which you know has all the properties that they let people that normal people would like about Bitcoin then Google will create a centralized currency and that centralized currency will be free to send and you know no more Norm there's like basically no more points for Bitcoin you know except as digital gold from that point on so the fundamental reason why both of those issues exist is this problem that in Bitcoin every node has to process every transaction so you know every it's because that's how the kit sets this database works is that you know everyone has to agree on what the blocks are and each block has to

contain all of the transactions so the point like so there are um no one approach to solving that problem is you say Okay instead of having one currency you have 100 cryptocurrencies and each cryptocurrency handles one percent of the funds and if you want to transfer funds between them then you just do a couple decentralized exchanges so that's a solution but the problem is that each individual changes 100 times less secure right so you have this sort of you know burrito Frontier between on the one hand security and then on the other hand scalability where if you have a lot of security then you don't have scalability if you have a lot of scalability you don't have a lot of security itself in your relationship and so in that in that language the way

that you fundamentally phrase the scalability problem is you say the fundamental scalability problem is the problem of figuring out how to have more how to have a larger economic weight of nodes explicitly protecting or implicitly protecting a blockchain then the number of nodes that are explicitly protecting it so by explicitly protecting it I basically mean you know the number of nodes that are actually watching the blocks on that particular chain and are actually verifying the transactions and by influence the way I mean the actual security level so like in all the architectures right now explicit equals implicit and so you have a solenoir trade-off so but you know there are architectures that solve the problem like

I know if you look at the scalability posts that I made like the especially the one on hypercubes and the one on multi-chain and the idea there is to come up with these sort of Tricks where you would basically have a system where by Def by default only a small number of nodes would actually be protected would actually be what verifying each block and those notes could even be randomly selected right so if you randomly select like 200 nodes out of a pool of ten thousand then you have this situation where okay each each block is only secured explicitly by 200 nodes but inputs away in order for an attacker to take it over the attacker would have to actually like control you know at least at least 400 no 4 000 nodes in the

entire network in order to have a statistical chance of being the majority in any one in any one of these you know 200 note juries and so you know the X the explicit number of nodes that are processing every block is 200 but the implicit level of security is somewhere around four thousand nodes so that's one approach that's something that I call jury selection then the other category of approaches is to say okay by default 200 known to look at this block but if we notice a substantial level of disagreement then we're going to do another then we're going to not count that round of consensus and we're going to do another round on the same block using all ten thousand nodes so by default only a small jury if there's if there's a problem then it expands to the

entire to the entire stat and so that way once again 200 notes explicitly But ultimately ten thousand nodes implicitly and they're acting as a sort of deterrent right so you know because this deterrent of the sort of second route exists attackers are not even going to try and so the 10 000 nodes never actually all have to become active so the so you know the you know it's once again it's a sort of it's a sort of a reserve capacity mechanism so explicit explicit number of amount quality of attention is 200 and the implicit security is ten thousand so yeah yeah so that yeah no yeah so like that's basically a summary of scalability theory and uh you know it

could obviously go into you know the complexities of hypercube and multi-chain not sure if we have time for that I'll already be running very late but like we I think that's okay fascinating conversation we're having so let's suddenly do that and I I totally agree with you I I don't think there's any way around this right there's just no way Bitcoin would go it just can't go like that right you can't have nodes processing all the transactions and scaling this to any to any size it just won't work right so we will obviously have to find a different way and uh it's surprisingly tricky right like I'm curious what are your thoughts on projects like fact on the try to address this issue well I mean factum is so it seems to be more going

into the proof of existence category and proof of existence is a much easier problem than uh that actually just be you know being a scalable cryptocurrency or being a scalable decentralized application platform because like it's a like the problem is that with factum like applications the primary thing that they care about is just proving the things gone into the blockchain whereas here you're trying to oh number one prove that things got into the blockchain number two prove that things didn't get into the blockchain and you know that's a bit harder okay so um just before we move on uh we want to uh thank her a second sponsor and talk brief about our second sponsor uh gems so you may have heard about James on our

earlier podcast episode with Daniel pellet so gems is a it's a social messaging app to be like WhatsApp but uh you know I I like to call it social messaging on cryptocurrency steroids so there's a the cool thing really is that if you think of WhatsApp right they got to like 400 million users some crazy number and there was no the only incentive people had to use this was just that it was free it was pretty good but what gems is doing is that they're sort of embedding a cryptocurrency in that so that you can pay a reward so each time you for example uh invite and you users you can get a reward um and it creates really strong

incentives that way and you can have a similar sort of deflationary model where you know the earliest doctors have more incentives and then hopefully over time uh they'll have so much momentum that the monetary incentive can decrease so I I really love this and I think it gives it a great shot at actually being successful there because it it has this powerful way of of getting incentives right um what else can we say about that so of course it also another thing they're trying to do is sort of solve the the adoption problem because James will be a social messaging app but it will be a Bitcoin wallet at the same time so uh you know their View and and I think it's a it's a very valid view is that a

Bitcoin wallet on its own it's hard to get people to use it it's hard to spread but if you make it a social messaging app at the same time and people get started off straight away using first of all a cryptocurrency gems and being able to spend Bitcoin from the same thing well that has a real shot at achieving a wide adoption and if you think of let's say WhatsApp again 400 million users is we think of the biggest Bitcoin wallet what's that like 2 million users so 1 million users with coinbase and blockchain info you don't have to get that far to get very far right you don't have to get that far to really spread Bitcoin and crypto currencies so um those are some of the things I love

about that and so yeah so we really really loved it when we add them on me this is a great project a lot of potential and what they are doing is doing something similar to what you guys have done it ethereum is that you're doing a crowd sale and with the money they raise their further developing the application and um you can get some gems that way uh and it's been going on for a while but it's still going on for a fact uh about 10 more days I think until the end of the year it's until January 5th actually January 5th okay so another two weeks and uh you can participate on coinify so if you go to quantify uh you will see the project there and you can

also check out the app at getgems.org and on quantify you can you know participate in the crowdcept and purchase some some gems I'm really looking forward to gems I can't wait for it to come out on Android yeah I really want to try it out I have high expectations well you'll get it first because you use an iPhone unfortunately yeah for me so actually very much tied to that a user sent us a question and maybe we could just do that here because it's so relevant I used to send us a question before now let me pull this up um so that was a guy named Jason wedding or reading I don't know how you pronounce last name so do you think appcoin tokenization model of fueling software Endeavors should be the default for most

if not all technology startup as a way to eliminate the need for public stock offerings I guess one could also say uh as a way to eliminate venture capital in that kind of funding I don't think there is a single Silver Bullet that's going to solve all monetization problems you know I think it's a matter of building tool a matter of coming up with tools and having as large a toolbox as possible so that people can monetize as as much as possible or like monetize as many categories of good things as possible so you know in the 2000s like we came we came up with this idea of hey you know we can monetize free content with advertising and that was really great it generated a huge amount of free content and it created this internet where so much stuff is free that you have you

know you have a library that literally contains more information than existed in the 1970s and you know that was available to even like billionaires in 1970s and yet even homeless people can enjoy it with just a 200 laptop so me now I we have this idea that you know with uh with token sales there is a way of monetizing things that are decentralized right so the problem with proprietary software and the problem with advertising is that you know you would have to get in order to monetize it you basically have to control the platform to a very large degree and you could argue to a very large extent that's why centralized Solutions have succeeded and that's why proprietary and

decentralized solutions are fizzle because there's just not enough incentive to build one now with token sales there is point for the first time and in plenty of intrinsic incentive to build decentralized systems and what's even better is that you know unlike what some other people Advocate that you know decentralized application Builders should somehow monetize by you know code selling services with the the with token sales what you actually have is you have this alignment of incentives where they're you know the success is um or the uh you know the the ability of uh of the uh of the people building the whole thing

uh building building the platform to uh uh to to continue to be successful is dependent on you know the token actually being useful and having value right if they build yeah if they build a bad platform then you know the crypto fuel isn't really useful for much and right no totally and and the other cool thing is that you can sort of give on that incentive to the users themselves right so it's not just the founding team but you can sort of give it to everyone and and I think that's really cool but of course I agree right it's it's a new alternative it's an interesting alternative as I think ethereum is shown better than anyone uh but yeah it will be like the only thing but yeah

definitely so so uh let's talk a bit so we were kind of running late but uh we definitely want to kind of touch on some more topics because they are extremely important extremely interesting and they sort of uh I think we arrived at the point now in our discussion where also the things we talked about before sort of led us to and that's you go to what is the cryptocurrency ecosystem going to look like in the future and I've been thinking a lot about that and I know you have been thinking a lot about that too and you've wrote in some um blog posts in that and I think one of the central issues in determining that is it's going to be Network effects um but uh let's start with that question do you

think there will be a purely digital uh store value and you you mentioned called 2.0 do you think that thing will exist um do I well it depends what you mean by do I think call 2.0 will exist like I mean I think well you know they exist already it's a matter of will it get widely adopted that's right well okay let's put it like that do you think we will have uh at one point a purely digital uh currency or a token or whatever we call it that will have the sort of mass adoption and also a disability and maybe those things

don't go hand in hand the disability and value that you'd actually be able to price things in that so let's say I want to do a life insurance contract and price it in uh you know purely digital currency so so if that if that currency succeeds unfortunately that currency is not going to be Bitcoin because Bitcoin is you know it has a fixed Supply and so it's inevitably going to forever be just too volatile to be a useful unit of account you know it's unfortunate fact like you know the fact is that gold gold doesn't even have a perfectly fixed Supply like the supply actually somewhat adjusts because you can produce more of it if the price goes up but if it's still it's been going up

and down by factor of five every decade that's not a stable unit of account right like Fiat currencies that you know people talk about how also once how also a bad and unstable they are but reality is uh each pair of Fiat currencies on average have actually done a whole bunch of uh a whole bunch like I've looked at a whole bunch of currency pairs on average the the price of one random fiat currency in another at least you know in the developed world only goes up and down by a factor of 1.6 although uh within any particular decade time span so if a crypto coin is to become a unit of accounts and people start pricing things in it it would have to be artificially stabilized in some fashion so by artificially stabilize I don't

mean you know I don't mean sexualization I don't mean controlled by Van Buren anchor Janet Yellen or or the ECB or whatever I mean I actually wrote a blog post on this um like like Robert Sam's actually before me he made the points in his paper on saying your shares that you know just sure there are lots of things to be critical about in centralized monetary policies that we see in the real world but we but we shouldn't be critic but we shouldn't extend our criticisms to the concept of monetary policy as a whole the concept of monetary policy by itself is completely legitimate right it just means that a monetary policy is an algorithm that determines what the supply of a currency is going to be so

with Bitcoin though this it's a completely inflexible Supply it's predetermined but if you could come up with a monetary policy that is descent that is decentralized and at the same time adjusts so it's you know at least partially aware of what its own price is then you actually could get pretty far right you could get uh if you have even a reasonable estimate you know from things like mining difficulty from things like transaction fees from even things like a built-in five storage Market if you had a reasonable estimate of what the value of a coin is from inside the coin then you could issue more units of the coin or issue fewer units of the coin you could stabilize the price difficult problem though it is yeah I agree and

look so there's two general categories of approaches to that one approach is to like try and create these kind of estimators that would try to like lead to price stabilization another approach is the shelling coin strategy which is where you use a decentralized Oracle to figure out exactly what the price of a coin is relative to you know could be US Dollars could be Euros could be special drawing rates could be the Consumer Price Index whatever and you then just have a currency which is or which you know issues more which issues more units if the price goes above one it takes you that's a way if the price goes below one in terms of that index so so one problem with those kinds of designs is that you know in order for it to be stable going up and

stable going down you have to have a system where you if the price goes down you have to be able to take units away right because if the supply can go up but it can't go down and as soon as it starts crashing it's just going to crash more and more and more there's nothing you can do about it so well it's not going to be that bad but you know okay like actually taking away upward volatility does take away downward downward overall ability to a downward volatility to a partial extent but if he wants to have perfect stability you need to be able to introduce units and take units away so this is where this Robert Sam's this sort of two currency model where you have coins and and shares and uh or you know as I call them stable coins and volatile coins and the idea is that

if if the price of a stable coin goes above one then the system sort of issues new stable coins and it auctions them off in exchange for all coins so the supply of stable coins it goes up in the supply of all coins it goes down and if the if the price of a stable coin drops below one then stable coins get absorbed and the way they get absorbed is they have an auction and new new Vault coins get issued yeah we're actually gonna have Robert's on on January 5th I think like the first week of January to talk about just that yeah perfect yeah so it's it's a really brilliant idea because basically instead of having one coin which is volatile you're sort of split the volatility in half when you have one coin which is stable and then the other coin sort of

absorbs all the volatility becomes extra volatile annual cover wants to speculate can speculate and whoever and whoever wants to just you know live their peaceful lives and have a decent unit of accounts and preserve their value you can do that you can do that as well so units it's actually the model of probably even the most interested in at this point um so we are we're sort of um coming up at the end but I very briefly want to cover side chains yeah give your view on on the side chains project so side chains basically is a way of

using the using a currency from another blockchain inside of your blockchain so you could have chain a and chain B and the way it works is that there's a way of locking up a coin in chain a in order to unlock a coin in chain B and then locking up according chain B in order to unlock a point in chain a so you can sort of freely convert them back and forth so that project it has it has a a lot of potential because in you know first first for networks that are either you know too weak to to try to bootstrap their own currency and you know it allows them to sort of use other other blockchains currencies as an alternative um

you know do I think that side chains will usher in the rise of Bitcoin as being the one true currency of just about everything or even at least everything in crypto probably not um actually the one the one big piece of evidence I have for that is that if you look so right now there's actually been what exactly one project which was announced which in which intends to be a Bitcoin a Bitcoin side chain uh that's that's not run by block stream and that project is truth coin which is in a decentralized prediction market and the biggest thing you did is actually this uh it this incredibly incredibly clever thing of sort of playing both sides at the same time where they say oh

yeah truth Queen is going to be a Bitcoin side chain so guess what it is in reality they have two currencies one of them is a Bitcoin side chain and the other one they're going to be crowd selling so yeah you know it's uh I think like just the economics alone I think the the side you know the attraction of token sales is uh is just too good for people to for people to prefer this wants to take the sidechain route on mass is one reason another thing is you know there are this you know people are going to wants to experiment with these alternative economic models like I could easily see you know in one or two years down the line stainless steel stable Coin Vault coin model completely displacing The

single currency model it could very easily happen so uh attached to the side change things so it seems if you look at the the side chains team they're incredibly smart people we've had some of them on the podcast before as well and incredible experience in the cryptocurrency space um and yet you know I S I also have my doubts a smaller two years what do you think is going on there do you um do you think that their economic interests because they tend to be very much early adopters uh to what extent do you think that's influencing what they are doing yeah I mean influenced by an

ideology that I've caught that I've uh started to call Bitcoin maximalism this idea that Bitcoin should be the one and only currency to rule them all and there should be absolutely nothing else I mean it's a few points that many people in Bitcoin seem to have um I guess set apart in a partial until partial extent a lot of people for somehow you know see it as unfair that a situation where Crypt where cryptocurrency wins and yet Bitcoin and yet Bitcoin doesn't or at least a little bit or Bitcoin has to or you know the number of cryptocurrencies will have we'll have to we'll have to increase there's some portion there is some portion of devotion of the of deflationism among them there's uh and it's probably a

combination of different Factor factors yeah uh yeah you really can't hit it down in one particular thing um yeah it's it's not sure I think that answers the question so I'd like to so we're about to wrap up here uh it's been a long conversation we've talked about a lot of things that I mean we'll have to have back on the show at some point because we've got so many listener questions here in the in the chat room on on YouTube uh there's about 50 people in the hangout right now so we'll have to have you back on again so we can address those questions but before we wrap up uh I mean this is something that I've been thinking about

a lot and when thinking of you and the things that you're that you're doing in the in the in the Bitcoin income system and everything that you've achieved with ethereum you know you've had a very interesting Journey uh you went from being a College Dropout to now perhaps being one of the most well-known people in the cryptocurrency space in my opinion uh you're definitely one of those people who are who is addressing the issues at hand and asking the right questions and trying to think of those philosophical things that will you know bring us into the future um what how have you been living this uh this past year um I basically spent in a large chunk of my life on airplanes it's uh I did you

know I think this year this year or something like 11 countries and with two or three three times as many as the added cities like basically like visiting all like visiting all of the different different Bitcoin communities and crypto communities and and people who are in conferences and people and people who are involved in ethereum and uh I guess still Orchards that's just uh uh to watch extensions to help myself over and into and to see you know exactly what uh what everyone in the world is up to um so it's interesting that you've still managed though because if if you look at your writing like your blog posts I mean I've been a big fan of rewriting uh back

to the day when you were writing a Bitcoin magazine I think my personal view I think you are you are the best writer in the Bitcoin space like you're the best person uh at explaining uh complex topics in a way that that are accessible to you know let's say put it semi-technical uh audience yeah uh I'm curious how do you manage to to find the time and the attention to write these uh monster Long blog posts I mean when you got eight hours on a plane what else do you do planes are probably the place where I'm the most productive so we're trained for them yeah but I mean you just you just uh got back to Toronto from yeah basically just touring around the world

uh how has that been it's interesting I mean I saw a whole bunch of a whole bunch of different places in different places different conferences it's uh you can see I was at in Israel UK Germany Switzerland South Korea just recently um it's interesting to see the kind of different emphasis that all the different groups have um like different different cryptocurrency cultures different things that people are interested in Israel was probably because it was the most technically Advanced uh like people before they were interested in prefer steak and uh zero knowledge proofs and so forth um you know Germany has its own emphasis London has a lot of Finance South Korea is still pretty new but you know it's

exciting to see what will come out of it um yeah yeah I mean it yeah it's you know this is this is a global movement that we're part of so yeah absolutely I mean you're definitely at the Forefront of that movement in terms of uh in terms of thought I I I really also appreciate your blog posts and everything that you've been putting out online and um but you're you're very young I mean you're what 20 21 years old 20 for another month 20 for another month where I mean you've already it seems like you've already accomplished so much uh where do you see your role evolving in the future um

probably going more into into research um like I've already started or started uh getting really heavily into scalability and consensus and I know it's I've gotten to the to the point where I'm starting like I understand what a lot of YouTube is better um eventually maybe write a book about some of this stuff um yeah yeah I mean I'd like to see crypto economics turn into I know proper immature sort of academic discipline roughly the same way as a standard group The Standard cryptocurrency is today yeah I I agree I think that's something

that's sorely needed for the future and it's so fundamental right I mean even with Bitcoin we've often talked about some of the uh some of the economic intricacies like I remember we talked about it with Jonathan Lennon with my current very long time ago we talked about um the sort of public goods problem of transaction fees and all that and that's just so a little research on that right and it's so fundamental to getting this right exactly um yeah I mean it's you know I think we definitely need a lot of research we need to like also you know open our open our minds a bit more like there's there's a lot of there's this big research Community that's still

dedicated to figuring out these really really tiny intricacies of of how Bitcoins are going to work 40 years from now and I think it's we figure that we really need to focus on our probably the more big big picture fundamentals like you know how do how how can a pro how can a protocol pay for its ongoing development um How would what would decentralized governance look like what are you know what are some of the challenge challenges in the reputation systems you know sort of all those to these problems that everyone thinks about that are on some level the basics that haven't been solved yet absolutely well uh thanks so much Vitali for joining us today that was super interesting and we'd love to have you back on I don't know maybe six months in

the future or something eight months uh here uh what's been going on then and uh also thanks so much for uh our listeners now there were some questions let me make up to one of them um uh I don't know if there's another one we should cover I I think we I think we will try to address those perhaps in in a different context as we as we are running very late but um yeah well thanks so much vitalik and uh thanks to all our listeners for listening now we will be back a week from now we will have sort of a year-end episode we we're not 100 sure about the format and the content yet but uh you know be the same time and the same place so definitely have to get some whiskey or something

bro yeah we'll definitely have whiskey food I mean it's gonna be a year-end episode it's going to be a year since we since we first started this like do you realize we've been doing this for a year already yeah it's a long time yeah we've done it a lot of this so um yeah thanks so much if you wanna yeah so follow us on Twitter at absent BTC and we'll let you know about that you can also um a sign up for a newsletter at the Academy newsletter and yeah leave us Nature's review we would appreciate that and it helps new people find the show although of course as as cryptocurrency fans you all know iTunes is a horribly trusted place but people do trust it so

well what can you do release them on a DHT already yes um okay well we'll see you next week and happy