EthCC On-site Dialogue Vitalik: My Reflections on Crypto Protocols, Ecosystems, and Tokens

Guests: Vitalik Buterin, Ethereum Founder; Christopher Goes, Anoma Co-founder

Host: Michael Ippolito

Compiled by: Deep Tide TechFlow

Key Takeaways

In this special episode, Vitalik Buterin and Christopher Goes joined our live broadcast during the intention discussion meeting at EthCC 2024! The main highlights of this campfire talk include: Vitalik's reflections on the journey of cryptocurrency so far, his insights on the birth of Ethereum, the splitting of blockchain components, and competing with centralized protocols. The interview concluded with reflections on social consensus and the importance of learning from past failures to better navigate future developments.

Reflections on the Past 15 Years of Cryptocurrency

Vitalik's Perspective as the Founder of Ethereum

Michael asked, the cryptocurrency experiment has been ongoing for 15 years, and since the birth of Bitcoin, Ethereum has also been around for 10 years. He requested Vitalik to reflect on Ethereum's design philosophy and share which aspects of its development met expectations and which were unexpected.

• Early Design Philosophy: Vitalik reflected on the origins of Ethereum, noting that he initially worked on projects referred to as "Bitcoin 2.0 protocols" (such as Covered Coins and Mastercoin), where he proposed the idea of adding a general-purpose programming language to enhance functionality. However, the slow progress of these projects prompted him to create Ethereum himself.

• Core Design Philosophy: The core design philosophy of Ethereum is to introduce a general-purpose programming language, distinguishing it from other protocols. Other important design decisions include a linearly growing money supply, an ASIC-resistant proof-of-work algorithm, and miners being able to vote on gas limits.

• White Paper and Use Cases: Vitalik mentioned that he listed several use cases in the white paper, such as token issuance, stable assets, financial derivatives, decentralized file storage markets, and parametric insurance. Most use cases have been attempted, but the development of the decentralized storage market has been disappointing.

• Unexpected Surprises and Lessons: The emergence of NFTs was an unexpected surprise, while some technical missteps, such as the 256-bit virtual machine, are areas needing improvement. Vitalik also reflected on underestimating development time, believing that better foresight could have simplified the roadmap and focused efforts on simpler proof-of-stake and scalability solutions.

Christopher's Perspective

Michael asked Christopher to discuss his experiences in the development of IBC (Inter-Blockchain Communication Protocol) and share lessons learned about decentralized protocol design from Moxie Marlinspike, the founder of Signal.

• Moxie Marlinspike's View: Moxie explained in a talk why he chose not to federate Signal, as it would slow down the protocol's iteration speed. He believes Signal needs to iterate quickly to compete with WhatsApp and other centralized messaging services while maintaining privacy and user sovereignty values.

• Challenges of Decentralized Protocols: Christopher believes a major challenge for decentralized protocols is that changing the social consensus of the protocol becomes more complex, requiring communication and negotiation with multiple stakeholders, which significantly slows down development.

• Balancing Rapid Iteration and Decentralization: Christopher emphasized the need to find a balance between rapid iteration and decentralization in the blockchain space, so that decentralized protocols can compete with Web 2 and traditional financial systems while ensuring decentralization.

How Do We Compete with Centralized Protocols?

Michael asked how, as designers and contributors of decentralized protocols, they can successfully compete with centralized protocols. Centralized protocols have advantages in speed and efficiency, while decentralized protocols face challenges in decision-making complexity and execution speed. How can decentralization become a "superpower"?

Vitalik's Perspective

Upgrading Decentralized Protocols

• Vitalik believes that although decentralized protocols face challenges in upgrading and improving, Ethereum has proven its feasibility. Ethereum has successfully undergone multiple protocol upgrades through a multi-client architecture and consensus mechanism.

• Advantages of Multi-Client Architecture: This architecture not only avoids the centralization issues of a single development team but also increases the diversity of expertise, enhancing development efficiency and innovation.

Benefits of Decentralization

• Political Interests: The multi-client architecture avoids monopolization of the protocol by a single team, providing more choices and flexibility.

• Diversity of Expertise: The presence of multiple development teams creates a larger pool of expertise, driving more efficient development and innovation.

Christopher's Perspective

Diversity and Innovation

• Christopher emphasized that the greatest advantage of decentralization lies in the diversity of perspectives and ideas, as well as the diversity of organizational structures. This diversity allows decentralized protocols to innovate and improve from different angles.

• Success of Ethereum: He praised Ethereum for successfully completing "the merge," one of the most complex distributed system upgrades in human history, proving the feasibility of decentralized protocols in complex tasks.

Diversity of Different Projects

• Christopher believes that different decentralized projects should offer different perspectives and solutions rather than simply replicating existing protocols. For example, the Anoma project aims to provide research perspectives and solutions different from Ethereum to complement and enhance the existing ecosystem.

Challenges of Financial Assets

• Slow Changes in Decentralized Protocols: Once financial assets are involved on the blockchain, changing the protocol becomes very difficult, as users do not want any mistakes to affect the security of their assets. Therefore, decentralized protocols need to proceed with changes very cautiously.

• Exceptions for Rapid Response: In cases of attacks or system failures, decentralized protocols need to respond quickly. This is one of the few situations that require rapid action.

• Exploring Capital Structures

• Christopher suggested exploring new capital structures to avoid the difficulties of subsequent changes caused by rapid launches. Many projects slow down significantly after launch due to real assets and decentralized operations, which need to be fully considered during the design phase.

Ethereum's Roadmap: What Happens Next?

Michael asked Vitalik about the future development of Ethereum. Vitalik published a blog post a few months ago, mentioning that Ethereum has shifted from "0 to 1" issues to "1 to N" issues. Michael hopes Vitalik can elaborate on the content of this blog post and discuss the future direction of Ethereum.

Vitalik's Perspective

Complex Upgrade Process

• Vitalik emphasized that Ethereum's "merge" was a very complex process, not only in implementation but also in terms of specifications and ecosystem adaptation. He pointed out that future upgrades will be relatively simple because much foundational work has already been completed.

Maturity of the L2 Ecosystem

• Ethereum's roadmap now leans more towards L2 (Layer 2) solutions. Vitalik mentioned that users and developers have gradually adapted to the L2 environment, with many applications already running on L2.

• Blob Data Structure: The Blob data structure introduced by EIP-4844 allows L2 to handle data more efficiently. This change means that future upgrades will have less impact on L2, allowing L2 to continue operating without major modifications.

Future Work

• Vitalik pointed out that future work will be more focused behind the scenes and become less disruptive. He believes that over time, upgrades will become more incremental and non-disruptive, reducing their impact on applications.

From L1 Issues to Application Layer Issues

• Vitalik believes that future focus will gradually shift from L1 (Layer 1) issues to issues closer to the application layer. He thinks developers now have enough tools to build applications that are both user-friendly and aligned with the cyberpunk spirit.

Role of Ethereum L1

• Vitalik explained the role of L1 in providing a better user experience. He proposed two possible roadmaps:

• Minimized L1 Roadmap: L1 serves as a settlement layer, primarily responsible for ensuring security and censorship resistance, allowing L2 to provide fast confirmation services.

• More Complex L1 Roadmap: L1 provides faster confirmation times, thereby alleviating the burden on L2, allowing some applications to continue running on L1.

• Vitalik mentioned that if he could make some changes, he would choose a simpler version of proof-of-stake, which could save a lot of development time.

• He also emphasized Ethereum's uniqueness in addressing 51% attacks. Ethereum not only relies on social consensus but also actively designs countermeasures at the protocol level to ensure automatic recovery in the event of an attack.

Censorship Resistance

• Vitalik emphasized the importance of censorship resistance. He pointed out that if L2 decides to censor users, the user experience could significantly decline. Therefore, he believes that L1 providing faster confirmation times is valuable, ensuring that user experience is not severely affected in the case of L2 censorship.

The Role of Standards

Michael asked, as blockchain gradually moves towards a modular world, what role do standards play in this?

He mentioned the concept of "tragedy of the commons" in the real world, where complete reliance on the free market may lead to resource overconsumption. How can standards play a role in the blockchain space in this context?

Christopher's Perspective

Distinguishing Modularity

• Christopher first distinguished between modularity in protocols and modularity in networks. He pointed out that modularity in protocols typically refers to building abstraction layers, while modularity in networks tends to involve adding many intermediary nodes within the network.

• Impact of Capital Structure: He believes that modularity in networks is more driven by capital structure than by design philosophy.

Modularity in Protocol Design

• In protocol design, modularity is very important, requiring clear distinctions between the roles of different entities. For example, in a Rollup-based roadmap, the L1 chain provides data storage, data availability, and ordering, while in a Plasma roadmap, the L1 chain only provides ordering.

• Decoupling and Coupling: Christopher believes that protocol designers should strive to decouple different roles, but in practice, economic and incentive factors may lead to the coupling of certain roles.

Market Structure and Protocols

• He believes that the benefits of free market competition for protocols lie in the free dissemination and evolution of ideas, which aids research and progress. However, the decentralized protocol development ecosystem may lead to complexities that make it difficult for users to understand and use.

• Advantages of Centralization: He pointed out that successful consumer software companies are often large hierarchical organizations that can coordinate software development and interface design, providing products that better meet user needs. Therefore, he suggests exploring capital structures that lie between free markets and centralized organizations to enhance the user experience of the cryptocurrency ecosystem.

Vitalik's Perspective

Maintaining a Sense of Unity in Ethereum

• Vitalik emphasized the importance of ensuring that the entire Ethereum ecosystem still feels like Ethereum when entering the L2 world. He believes users should not feel confused when switching between different applications, such as not needing to manually switch networks.

• ERC-3737 Standard: He mentioned that users should be able to input addresses in their browser wallets and click send without needing to consider which chain the recipient is on.

Value of Standards

• Vitalik believes the greatest value of standards lies in simplifying the user experience, allowing users to easily operate across different applications and networks. He also mentioned that some entities need sufficient incentives to drive the implementation of these standards.

• Role of the Ethereum Foundation: He believes the Ethereum Foundation can play a larger role in promoting these standards, for example, by coordinating cross-L2 infrastructure.

Incentive Mechanisms

• Vitalik discussed the idea of incentivizing Rollup by changing ETH issuance rules. He believes this mechanism needs to be designed very carefully to avoid politicization.

• Indirect Selection Mechanism: He mentioned that the best technologies are often indirect selection mechanisms rather than directly selecting who receives funding. This mechanism can reduce politicization and increase fairness.

Splitting the Blockchain

Michael asked about the issue of splitting blockchains. He mentioned that we typically discuss blockchain splitting from perspectives such as data availability, execution, and settlement.

However, he believes we are actually splitting the core components of the blockchain: assets, security models, and communities.

Christopher's Perspective

Bundling in Bitcoin

• Christopher first reviewed the history of Bitcoin. He pointed out that Bitcoin initially bundled assets, protocols, and communities together. The early Bitcoin community believed these elements were tightly coupled, and few attempted to separate them.

• Decoupling in Ethereum: Over time, projects like Ethereum began to decouple these elements. For example, there is a connection between the Ethereum community and the ETH asset, but they are not entirely the same. People in the community may not hold large amounts of ETH, but they are still part of the community.

Relationship Between Community and Assets

• Christopher believes that the value of Ethereum comes more from the community than just the assets themselves. He pointed out that even users who only care about the dollar value need to consider how many people are willing to buy Ethereum with dollars. This demand comes more from the community's support and trust in the project rather than just usage at the protocol level.

Capital Structure of Assets

• He proposed that one benefit of decoupling these elements is the ability to explore different capital structures. For example, asset A could allocate 50% of its supply to holders of asset B each year, and vice versa. This mutual allocation mechanism can enhance collaboration between different assets and reduce redundancy.

• Governance Challenges: However, this mechanism also faces governance challenges. For example, deciding how to allocate assets is difficult to resolve through abstract mechanisms and ultimately requires subjective judgment from people.

Vitalik's Perspective

Uniqueness of the Ethereum Community

• Vitalik emphasized that the uniqueness of the Ethereum community lies in its diversity and inclusiveness. He pointed out that people in the community may use different technologies and tools, but they all share the values and goals of Ethereum.

• Importance of Standards: He believes that standards are very important in maintaining community consistency. For example, the ERC-3737 standard can simplify user operations across different applications and networks, enhancing the sense of unity across the entire ecosystem.

Designing Incentive Mechanisms

• Vitalik discussed the idea of incentivizing Rollup by changing ETH issuance rules. He believes this mechanism needs to be designed very carefully to avoid politicization.

• Indirect Selection Mechanism: He mentioned that the best technologies are often indirect selection mechanisms rather than directly selecting who receives funding. This mechanism can reduce politicization and increase fairness.

Successes and Failures of Cryptocurrency

Michael posed a final question: assuming we look back at the cryptocurrency experiment in 15 or 20 years, what factors will determine its success or failure? What would make us feel it was a worthwhile investment of time and something to be proud of? Conversely, what would make us feel disappointed? How can we avoid disappointing outcomes?

Vitalik's Perspective

Practical Application of Technology

• Vitalik believes that the ultimate determinant of cryptocurrency's success is the practical application of technology. If cryptocurrency can become mainstream, or at least a credible alternative like Linux, that would be a success. For example, Ethereum accounts could replace social account logins, or cryptocurrency could become part of the financial system, with DAOs serving as alternatives to businesses or non-profits, and decentralized social media or prediction markets achieving success.

Signs of Failure

• Conversely, if the cryptocurrency space is remembered as a group of dwindling idealists shouting or as a group of people trading digital monkeys and celebrity photos, that would be a disappointing outcome.

High-Leverage Work

• Vitalik believes that current work has a high leverage effect. While certain trivial applications (like trading digital monkeys and celebrity photos) are not affected by fees and user experience, truly valuable applications do rely on reasonable fees and user experience. Therefore, improving these aspects can promote the adoption of genuinely useful applications.

Improvement of User Experience

• He illustrated the importance of improving user experience for application success. For example, the trading experience on Augur five years ago was very poor, but now the experience on Polymarket has greatly improved. The user experience of decentralized social media has also significantly improved, facilitating broader adoption of these applications.

Christopher's Perspective

Autonomy and Interoperability

• Christopher believes that the promise and limits of cryptographic technology lie in balancing autonomy and interoperability. In today's world, most systems require communities to choose between autonomy and interoperability. For example, if you want to interoperate with the US financial system, you must use the SWIFT system. However, cryptographic technology can provide standardized protocols that allow communities to clearly delineate which parts need to rely on others and which can operate autonomously.

Low Switching Costs

• If protocols can facilitate easy interoperability, then switching costs will be low. When you want to change the topology or dependencies of a community, it can be easily achieved.

Social Impact

• Christopher hopes to become completely irrelevant in 15 years. He believes that blockchain technology should become as mundane as database technology, serving as infrastructure rather than a hot topic. One sign of success is that blockchain technology becomes so ubiquitous and boring that only a few professionals pay attention to it.

Live Q&A

• Nathan mentioned Vitalik's previous comments about the existential dangers of social consensus and asked whether it is valuable to adopt an accelerationist approach to address economic issues in the space, so we can quickly experience all failure modes and have the opportunity to fix them before the space becomes larger and harder to coordinate.

• Vitalik responded that this is indeed an interesting perspective. He mentioned that if the early Mt. Gox collapse had not occurred, people might not have considered decentralized exchange technology important and could have become more reliant on centralized exchanges, potentially leading to later events like FTX being more severe.

• He pointed out that threat response is a very chaotic system, and this perspective can easily be correct but can also be easily exploited by bad actors to justify their actions, even if those actions are not legitimate.

• Vitalik personally tends to hope that these experiments happen in places smaller than Ethereum's scale. He believes we need an experimental environment with an economic scale between testnets and mainnets. For example, experimenting on an L2 with a TVL and DeFi activity level in the tens of millions to hundreds of millions, rather than at the scale of Ethereum.

• He mentioned that L2 could serve as a "crypto-anarchist economic zone," encouraging people to conduct wild experiments in this environment and requesting regulators to allow these experiments as much as possible. If people are willing to experiment in this environment, they can do so; otherwise, they can remain in the conventional world.

• Vitalik believes that the risk of Ethereum itself serving as a sandbox has become too high, but the scale of L2 feels just right.