83 - Beyond Coin Voting Governance | Vitalik Buterin

Vitalik Buterin returns to the Podcast to discuss his recent article 'Moving Beyond Coin Voting Governance.' As always, Vitalik comes with a birds-eye view of high level challenges facing the crypto space with a moral & philosophical slant. Building sufficiently decentralized governance mechanisms is a hugely challenging endeavor. Tackling elegant solutions to coin voting, we also cover the benefits of running your own node, the metaverse, and an update on the Ethereum narrative. When Vitalik comes on Bankless, it's time to listen closely. ------- 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha 🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger 🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants ------ 📣 TracerDAO | Perpetual Pools are now Live on Aribtrum! https://bankless.cc/Tracer ------ Topics Covered: 0:00 Intro 4:00 Vitalik Returns! 7:26 Decentralized Governance 14:38 Who is Governance For? 19:44 Coordinating Public Goods 26:07 Public Goods & Upgrades 34:52 New Mechanisms 38:28 What is Blockchain Governance? 47:53 Ungovernance for Layer 1 54:00 Why Coin Voting Sucks 1:02:20 Whales 1:12:15 Running Your Own Node 1:22:14 Culture & Technology 1:26:51 Scalability Tradeoffs 1:31:05 The Metaverse & Loot 1:36:55 Update on Ethereum 1:43:15 Closing & Disclaimers ------ Resources: Vitalik on Twitter https://twitter.com/VitalikButerin?s=20 Moving beyond coin voting governance https://vitalik.ca/general/2021/08/16/voting3.html ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:08Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, Vitalik on the podcast, got to listen to every Vitalik episode, sometimes two or three times. This was a fantastic one. What did we cover?

• 0:30David Hoffman?

  Yeah, we covered a bunch of different subjects. Every time for our quarterly check-in with Vitalik. He put up two articles that we wanted to go through. One was Vitalik talking about how we could graduate or evolve from coin voting or token voting in DeFi, and also just token voting in general, kind of the issues that token voting presents and how we can circumvent around them with new governance mechanisms for DeFi apps. And as Ethereum becomes more and more valuable, as these DeFi apps become more and more valuable, the conversation as to how to govern these things in ways that aren't just centralizing control into token holders is going to become even more important. Then, we also turn to

• 1:13David Hoffman?

  the conversation, which has resurfaced lately, regarding the infrastructure required to run a node for a blockchain, all of the different bottlenecks and requirements that you need in order to run a node, and how these different choices that are made about hardware requirements impact how scalable a blockchain is, both in terms of its actual throughput, but also in terms of its decentralization. Decentralization is also a scale that you can optimize for different ends of the spectrum. So we revisit that conversation as well. And then we finish off with some really fun stuff. We ask Vitalik about the metaverse, and whether or not Ethereum with this whole loot phenomenon has gone full circle. Vitalik

• 1:53David Hoffman?

  always made the joke that he made Ethereum because he wanted to not ever get nerfed by his special spell or item.

• 2:02Ryan Sean Adams?

  Level 60 Warlock or something?

• 2:04David Hoffman?

  Exactly, right. And so now that we have the metaverse, we have this gaming structure that you can't actually get your assets or your spells rug-pulled from you. So that conversation happens towards the end. And then, of course, we just check in with Ethereum about where he considers Ethereum to be in its current state and history, both at the protocol level, but also in just the mass adoption society level. So a bunch of different things here in this episode with Vitalik.

• 2:30Ryan Sean Adams?

  Yeah, really relevant things too. Like, you know, number one is relevant because everything is a coin vote, right? And we talk about decentralized governance, but are we actually moving towards decentralized governance? The second thing is relevant because we have all of these high-performance blockchains. David, you and I just did a panel, I would say a kind of a debate-ish, but not really. It was a panel about Solana and comparing and contrasting a high-performance blockchain like Solana to Ethereum. And it really centered around this question of how important is it for a user to have the ability to run a node? It turns out Vitalik and the Ethereum set of values think that it's very important for users to run a node, have the ability to opt out so that the elites don't control the system, right? This is the trade-off you're often making with a high-performance, you know,

• 3:15Ryan Sean Adams?

  high transactional throughput blockchain and doesn't get a lot of press because it's easier during a bull market when price is rising and, you know, people want unlimited block space to just make these kinds of trade-offs. So we discussed that. And then, of course, the metaverse is always a really interesting conversation, the state of Ethereum. So guys, we think you are going to enjoy this episode with Vitalik. Before we get into the details, before we get into the conversation, we want to thank the sponsors that made this episode possible.

• 3:43David Hoffman?

  Living a bankless life requires taking control of your own private keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their Ledger hardware wallets, which makes proper private key management a breeze. But the Ledger ecosystem is more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite D apps all in one place, Ledger is where you want to be. Not only does Ledger let you buy crypto assets straight from the app, but it also hooks into decentralized exchange aggregators like Paraswap, which makes sure that you are getting the best prices on your trades without your assets ever leaving your control. DeFi never stops growing and the Ledger Live app grows alongside with it.

• 4:27David Hoffman?

  So click the link in the show notes to see all the DeFi apps that Ledger Live has. And stay tuned as more and more apps come online. And if you don't have a Ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab your Ledger, download Ledger Live and get all of your D apps all in one place.

• 4:45David Hoffman?

  Arbitrum is an Ethereum scaling solution that is going to completely change how we use DeFi. If you've been using Ethereum for the past 12 months, you've probably noticed the high gas fees and the slow confirmation times that have been plaguing DeFi. Too many people want to use Ethereum and it doesn't have enough capacity for all of us. That's where Arbitrum comes in. Arbitrum is a layer two to Ethereum, which means Arbitrum can increase Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used to paying. When interacting with Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security.

• 5:27David Hoffman?

  If you're a developer and you want to save on gas costs and make an overall better experience for your users, go to developer off chain labs.com to get started building on Arbitrum. If you're a user, keep an eye out for your favorite DeFi apps building on Arbitrum. Arbitrum has been working with over 300 teams, including Ethereum's top infrastructure projects, and will be opening up to all users shortly. There are so many apps coming online to Arbitrum, so you may want to pack your bags in preparation for the great migration to the Arbitrum layer two. To keep up to speed with Arbitrum, follow them on Twitter at Arbitrum and join their Discord.

• 6:02Ryan Sean Adams?

  Bankless Nation, we are super excited to have Vitalik Buterin back on the podcast. He is the Ethereum co-founder, researcher, guy who will never give you free ETH on Twitter. I can guarantee you that, Vitalik. Welcome back to Bankless.

• 6:17Speaker 02

  Thank you very much. It's good to be here.

• 6:18Ryan Sean Adams?

  It's awesome to have you again. I feel like this is an opportunity to have sort of a conversation with you and just pick your brain, almost like an ongoing conversation. The last time we chatted, we talked about the topic of legitimacy and that was now three months ago. That was in May. So three months is a long time in crypto. It's probably like three years in the regular world. We've hit new milestones. There have been new issues, new insights. You've written a slew of blog posts. We want to cover those as much as possible. This time, I think we want to lead with a topic that is top of mind in the crypto community. And I think it's it's, you know, part of your mind share as well, because you wrote about it. And this is the topic of governance.

• 7:02Ryan Sean Adams?

  So read your article about moving beyond coin voting. And if I could maybe, you know, summarize and give the headline here. It feels like after reading that you kind of think coin voting sucks, that the community shouldn't settle on it as the only solution. But that instead, we should explore better decentralized governance protocols. So we want to start there and pick your brain on that subject. I guess my first question is this, when we talk about decentralized governance, do you think that's even possible? Or is this somewhat of an aspirational goal that we'll never quite achieve?

• 7:39Speaker 02

  I mean, I think you can definitely have governance that's much more decentralized than, you know, the average thing that people call a centralized org. Obviously, the question of like, how much decentralization can you achieve is a complicated and fascinating one. And I mean, there is the the question of like, what kind of benefits you can get from that decentralization. But I do think that it is a worthwhile experiment. I think in particular, because like blockchain based and decentralized platforms, like they had derived their entire value and legitimacy from a creative, a credible neutrality. As we've talked about before, right?

• 8:24Speaker 02

  And it's very difficult for a platform to claim to be incredibly neutral. If there is a very small team that's controlling everything and all of the decision making behind it. So coming up with forms of governance that do not depend on a small team making all of the decisions. It's definitely something that's very important for a bunch of reasons. But, you know, at the same time, like have a coin holder's voting is definitely far from the only way to do it.

• 8:58David Hoffman?

  So when we talk about governance baked into that conversation implies that there's some sort of objective or direction that governance actually points towards. And in your article, you juxtapose to the difference between, or at least imply the difference between public goods and private goods, right? And when we have these DeFi apps, this financial infrastructure, and also Ethereum at large, I think there is a question outstanding as to who governance is actually governing over these systems for. And so like, one possible interpretation is that the governors of the MakerDAO system are governing in order to prioritize and uphold the value of the MKR token above all other things.

• 9:42David Hoffman?

  Or an alternative interpretation might be that MKR is a token that is used to direct the MakerDAO application to become the best financial services product on Ethereum, for the betterment of the users. And so when you think of governance, how would you answer who is governance for when we talk about all of these things that we are governing over?

• 10:06Speaker 02

  Yeah, I think that distinction between is it for the benefit of the holders or the benefit of the users is really important, right? Because especially in the case of these platforms that contain a lot of what I call internal capital, right? In this case, it's like the ETH that's locked up in the MakerDAO contracts. Like, potentially, you could imagine a world where, well, like, let's say, for example, that Ry does so really well, and it ends up taking over, and there ends up being this public consensus that Ry is better than DAI, and DAI is kind of on the way out. But at the same time, there's like a couple of legacy organizations that still hold a whole bunch of DAI, but like, you just know that over the next few years, they're gonna

• 10:49Speaker 02

  stop using DAI, and the platform is gonna kind of swole away to having nothing, right? Like, in that situation, if you were an MKR holder, it's like, if you feel like you don't have the long-term prospects anymore, it's absolutely in your long-term interest to just make a vote that just says, "Okay, guys, we're just gonna snap up all the ETH that's locked up in the collateral for ourselves, distribute it among the MKR holders, and like, screw the DAI holders, because, well, we don't really have a long-term reputation anymore," right? And like, to me, that's, it sounds like an outcome that's pretty fair to describe as being like, bad, right?

• 11:27Speaker 02

  There like, I think in a lot of cases, there is alignment between the token holders and the users. But also, in a lot of cases, there really isn't, right? In a lot of cases, like, for example, sometimes, you know, the, the thing that the, that the platform is trying to provide and just ends up requiring trust. And so you want governance that can actually like satisfy the user's trust, even if it's not in token holders' interests. Sometimes, the participants in the community, or even the creators of the project, like, they have particular values that they care about that go beyond the interests of token holders.

• 12:06Speaker 02

  So like, for example, I might care about economic equality and I might want to build, if, like, if I create a new token, build in a gadget that distributes, say, one unit of that token to every human per year. Like, just because, like, I want the supply to be more egalitarian. Now, the existing token holders might not want that. And so, and they might want, you know, if they give all the governments, governance, they might end up like shutting it off or like basically a kind of stopping, you know, registration of new humans completely. So that's another example of where, like, there is some other goal that it seems reasonable to try to,

• 12:46Speaker 02

  like, have a governance mechanism to achieve, but that will just not end up being well-aligned with the, the interest of any particular token holder. Another thing, I think, is also that, like, token holders, they often end up holding tokens of a lot of different projects, right? Like, it often ends up being the case that, like, if you just try to use your token holders as representative of your community, then those, like, the set of token holders that you get ends up being the same, right? Like, you know, there's these big investment funds and they have a big chunk of, you know, the Yonkers swap, they have a big chunk of a whole bunch of these other projects. And

• 13:26Speaker 02

  Basically, like you end up losing the ability to have kind of uniqueness and to have different communities that actually have like different values and are making kind of earnestly different attempts at pursuing whatever their goals are. So there's also just this kind of like this sort of risk of just, you know, homogenization in terms of like strategy for if token holders end up controlling things, right? So I feel like those are some examples of reasons why governance that explicitly tries to do something other than satisfying the desires of token holders for their token to make more money is something

• 14:09Speaker 02

  that's important. And it's something like basically the reasons why it's important to empower other kinds of constituencies, or at least create structures where even if token holders are part of those structures, token holders have some kind of like incentive to like actually participate in the in the system in a way that serves those goals.

• 14:37David Hoffman?

  So Vitalik, when you were writing your article or presenting an argument about why token vote sucks and we need better and better and stronger and more aligned mechanisms, who are you trying to? First off, I think I can claim that there is a values judgment baked into even writing the article in the first place, implying that, you know, you actually think that governance should be different and more inclusive. And so when you were writing this article, who were you trying to get more included into governance? Or what was the the goal of even bringing up this conversation?

• 15:10Speaker 02

  I think it's, first of all, it's a conversation like that definitely did not start with that post, right? Like, I have been writing these posts on like, you know, the one on collusion and on coordination problems, the post back in 2017 and 2018 on governance, where I was criticizing what was going on in the EOS ecosystem with all of the bribing that was happening. So

• 15:37Speaker 02

  It's definitely something that I have been trying to express for a long time. And I guess I definitely felt the need to express it just much more cleanly and plainly in one of these, you know, blog posts where just the whole point of the post is the title. But the reason why I felt that way is just because, you know, we have been seeing over the last year and a half, this big emergence of these new DeFi protocols and DAOs of all kinds, right? And we've been seeing people do all these different experiments, some of these projects that are launching from zero. So, you know, they just start off being DAOs right from the beginning.

• 16:20Speaker 02

  And the thing that I've been seeing, right, is that people feel the need to add decentralized governance. And I think there's good reasons why they feel that need. But at the same time, like, there just aren't any ideas available for how to implement that decentralized governance beyond like just token voting. And like, someone needed to sort of just express that alternative and just express the idea that there is an alternative to token voting and that alternatives to token voting are not like automatically centralized or whatever.

• 16:53Ryan Sean Adams?

  In the absence of these alternatives, you think people just, you know, settle on token vote as almost like a shelling point just because everyone else is doing it without even thinking about it?

• 17:03Speaker 02

  Yeah, totally. It's like, that's a natural effect that happens everywhere, right? Like, this is the whole, you know, if you do the same thing as everyone else and you fail, then like, it's not your fault. But if you do, if you try something different from everyone else and you fail, then like everyone yells at you and you get fired, right? Like, this is the sort, like, that's the sort of thing that ends up causing a lot of problems in a lot of contexts. I mean, even like, you know, we have, we have 206 different countries, but we have very far from 206 different approaches to policy and a whole bunch of important questions.

• 17:45Speaker 02

  Some of them, some of which really could use a lot more diversity and options. So, I guess.

• 17:55Speaker 02

  Yeah, I definitely am worried that if alternatives to coin voting don't kind of get expressed and at least intellectually expanded on, then like, things will settle on coin voting by default, and then we'll be having this conversation in five years anyway, but we'll be having it like just because, you know, the coin voting, DAOs will have all been captured in some way or other, and it will be much harder to steer away at that point.

• 18:21Ryan Sean Adams?

  They used to say in enterprise sales circles, like, nobody ever got fired for buying IBM, right? It's like, it's so hard to get your product in there, because if you buy IBM, it's just, that's what everyone's doing.

• 18:33David Hoffman?

  Vitalik, I want to, we definitely want to get more into the nitty gritty details of this conversation, but I want to finish off this part, this introduction part with this question. I was recently in a debate with a Bitcoin maximalist, self-identified Bitcoin maximalist, and one of his big critiques about Ethereum and proof of stake is that the proof of stake actually instantiates the value of the Ether token a little bit more strongly than it does in proof of work. And so the Bitcoin, a Bitcoiner critique on Ethereum is that Ethereum is not a public resource, it's a private economy with private products that are meant to enrich Ether holders. What say you about this?

• 19:09Speaker 02

  I mean, isn't that true with Bitcoin as well? Right? I mean, Bitcoin is even more strongly enshrined into the Bitcoin blockchain than Ether is enshrined into the Ethereum blockchain, because like, in the Ethereum blockchain, well, okay, fine, you have to pay EIP 1559 fees and ETH, but in the Bitcoin blockchain, like Bitcoin is literally the only thing that you can transact. And, I mean, yeah, it's like, the Bitcoin blockchain almost explicitly exists to support the Bitcoin currency and therefore like to support the economic interests of existing holders of the Bitcoin currency.

• 19:44Ryan Sean Adams?

  Does that preclude these two things from being a public good, then? So?

• 19:48Speaker 02

  I think in general, publicness is always a spectrum and not a binary, right? Like, I think there's almost like, there's very few things in the world that are truly public, right? Like there's a, and even like national governments, right? Like, you know, national governments are often talking about themselves as like, you know, we're quote, public, you know, the public sector and unlike these private entities that merely represent their own interests, you know, we represent, quote, all of society. But like, you know, the reality is we live in an interconnected world and like, you know, does the US government actively represents the interests of, say, society in Afghanistan? Right? So like every, like, pretty much anything that exists in the world as it is,

• 20:33Speaker 02

  like it's somewhere on the spectrum between, you know, being something that exists just for one person and being something that exists for the entire world. Some things come close to existing for the entire world, but some things are further, some things are even further. Now, I think in the case of cryptocurrencies, like, it's definitely true that their supply is kind of, like, supply distribution is kind of unbalanced. And I think, like, that is a legitimate problem. Like, it would be nice if the, if the supply of cryptocurrencies was more wide distributed. Though at the same time, the, I think Ethereum did do a better job than most other cryptocurrencies, right?

• 21:15Speaker 02

  And I don't know if you read my recent article on the, like, the Gini index and inequality. One of the charts that I had in there was just like the percent pre-mined and like the percent allocated to like existing kind of like closed off pre-investors and all these different blockchains. And like ETH and Cosmos, I think it was, that, that were the only ones that were looking decent and the rest of them were like pretty much completely downright dystopian. So that was, so it's an issue. But right, it was, yeah, there it is. ETH and, oh, right, no, it wasn't, yeah, Cosmos is up there. Oh, TESOS does a good job, it's nice. I guess Cardano as well. EOS, I don't know.

• 22:00Speaker 02

  I mean, in the EOS case, I guess, like, wasn't there a lot of just like accusations of all kinds of wash trading in the sales? So I'm not sure how genuine the 10% figure is. But like, you could just look at the chart, right? And you could see, you know, like which of these blockchains like are. Like which of these blockchains are the ones that like if Ethereum disappeared tomorrow, like you would personally feel like at all comfortable migrating to, right?

• 22:26Speaker 02

  The, I guess, so as far as coin holdings go, that's a legitimate issue, but then as far like the other thing is that blockchains aren't just about empowering people who hold the coins, right? They're about empowering users and they're about providing value to people by using those blockchains. And the ability to use Ethereum definitely is something that is like, I think, truly global. And like, you know, and you do have people in all sorts of places that are like just benefiting from the ability to build things on Ethereum and actually you have those applications that interact with each other and have people use those applications. So it is,

• 23:07Speaker 02

  I guess Ethereum is not a perfect system, but also like pretty much anything else that calls itself public is very far from a perfect system either. So, you know, you like you can't have perfection, but we can try to kind of keep getting better and better than what we had before.

• 23:21Ryan Sean Adams?

  Okay, so we can't have perfection, but we can try to keep getting better and better than before. But I guess that begs the question almost, why is decentralized governance better in the first place? Now, some people would say, hey, why go to all this trouble? I mean, we have shareholder vote in corporations, centralized governments do fairly well. I know you mentioned in the, you know, the top part of your article that some of these cypherpunk values are kind of embedded in the blockchain movement to minimize coercion, maximize coordination with, with, you know, minimal coercion, private property and markets. But like, why from a values perspective, do you think decentralized governance is important? You mentioned credible

• 24:05Ryan Sean Adams?

  neutrality, right? So is this like a legitimacy and social scalability argument? When you have decentralized government governance, then you can get more people on board and it benefits more users? Or what's kind of the argument for all of this?

• 24:21Speaker 02

  So that's one good argument. Another good argument, I think, is that users want systems where the governance of those systems is just clearly not something that can easily screw them over, right? Like, if you look at Twitter and Facebook and all the centralized love to our companies, like, this happens all the time, right? You have this ecosystem of startups that build themselves around Facebook APIs or Twitter APIs and doing interesting things with those APIs until eventually, when, you know, once they get big, get big enough, like, Facebook red-pulls them and says, like, you know, "Hey, guys, you know, either we buy your company that you spent years developing for $500,000, or, you know, tomorrow,

• 25:01Speaker 02

  we're gonna shut off your API and build our own competitor." And that's, Ethereum is not going to do that to you, right? You know, Bitcoin is also not going to do that to you. So that's like, the fact that Ethereum governance just has so many stakeholders and the fact that users have to actually, like, choose to download and accept any of these software patches. And all of these things that together basically means that, like, there isn't this kind of ability to just, you know, immediately go and flip the switch on someone, which is,

• 25:40Speaker 02

  I think, something important. And it's something that can easily make people feel much more comfortable building applications on Ethereum than they would feel building on, like, some of one of these platforms that's just run by a single company.

• 25:57Ryan Sean Adams?

  That's a good teaser for the second part, where we want to talk a bit more about how users download the software. But before, we're, you know, still on the subject of decentralized government, governance. I'm just curious, for people who aren't sure of the types of decisions that actually need to get made in blockchain systems, or even in DeFi apps, I think you did a good job sort of splitting this into two areas. Like, number one, there's this category of decisions around funding public goods, right? How do you fund things for the continuance, the good of the protocol itself? And the second is upgrades and improvements. So if there's some upgrade that needs to happen, who decides what, you know, features

• 26:39Ryan Sean Adams?

  that should include, or how that's pushed out? Could you get into these two things, and the decisions that need to be made through decentralized governance?

• 26:50Speaker 02

  Right, so there is basically, I mean, I outlined two categories of decisions that decentral, some kind of governance is needed for, and so if you want to be decentralized, that decentralized governance is needed for. One of those categories is funding public goods, just funding people who or teams that do things that are useful to the project ecosystem, or even just more generally to the project's underlying goals. So this includes things like documentation, like software development, research, like basically anything where the benefit provided by what you're doing isn't something that can be kind of packaged up and separately sold to individual people, right?

• 27:35Speaker 02

  Like, you know, we are doing this podcast, and then that podcast, you know, either it doesn't get published, or it does get published, and then once it gets published, anyone can see it. And then if I come up with an idea and I write it up on E3 Search, like I can't, you know, charge subscription fees for that idea, I'd only give access to that idea to people who like pay some amount of money, right? It's, you know, either I do it for the world, or I do it for nobody. And there, in the internet world, a large portion of like pretty much all things are like that, right? So the, like, funding those things is often a challenge because they suffer from the free writer problem, right? Like, if one person funds it and another person doesn't fund it, well, both people benefit.

• 28:20Speaker 02

  And so why would the first person fund it? So the basic, the solution in the crypto space is basically like, well, if you have these protocols that do end up having some kind of ability to monetize, then, you know, like that funding could then be directed into these public goods somehow, right? Like, basically, not every project that's useful has a monetization strategy. And so what you basically do is you take the things that have monetization strategies and the things that are useful, and you kind of like line them up and plug them into each other, right? And so It's um, so this is one thing that needs that you need to have some governance governance for because

• 29:05Speaker 02

  once you start funding public goods, other than things that are really trivial to measure, like for example, network security, like other, once you start funding public goods, such as like software development and documentation and translation of research that you can't measure programmatically, then you need some kind of governance system in order to figure out, well, which projects do you actually support in the first place, right? So that's one thing that governance is needed for. The other thing is protocol upgrades and parameter changes. So one example of this might be like, you know, in MakerDAO, you have this question of like which assets are considered acceptable for collateral. And I've actually been critical of like that aspect of MakerDAO. And like one of the reasons why I like RISE is because it just says, well, no,

• 29:50Speaker 02

  ETH is the only collateral that's ever going to exist. And but even then, you need governance to figure out like, what is the oracle going to be, like, who are the oracle providers? In a system like Uniswap, you would need governance to figure out, say, right now, I think they use it to just, well, right now, just for public goods funding, but in the future, it could be decide, used to decide like parameters of like fees of existing markets and things like that.

• 30:23Speaker 02

  In anything more complex, like you would, let's see, like in something like ENS. Well, in the case of ENS, I mean, they have these, like, they want to charge fees that are to them, they're in dollars, but then, you know, what happens if, like, do they charge it in one particular stablecoin? What if that one particular stablecoin disappears? Do they have to switch to a different stablecoin? Like, there's these decisions that have to be made, right? And then there's just protocol upgrades in general. Like, what if, you know, they come up with a just completely better version of the protocol and they want to switch over the current protocol to that future protocol without users needing to like move everything that they're doing over manually?

• 31:08Speaker 02

  So that's something that's important as well.

• 31:11Ryan Sean Adams?

  I mean, these could be pretty major decisions, right? When we're talking about like, you know, just even 10% of ETH annual issuance is like hundreds of millions of dollars, right? And the governance power to direct that fund, that funding is quite a power indeed. Many of these DAOs also have, you know, billions of dollars in their treasury and the power to direct that is quite a power indeed. So we're talking now about pretty high stakes, not like the early days of crypto where, you know, it was just kind of fun money, but like now we're talking about real systems, high stakes, many users, billions of dollars.

• 31:51Speaker 02

  Absolutely.

• 31:54Speaker 02

  The other thing I wanted to bring up with protocol changes is that like sometimes you might not even realize that you need to do an upgrade, but you end up needing to do an upgrade. Like one example of this is, let's say, for example, like you take RAI, right? It's a, you know, this stablecoin project, they really value governance minimization. And so they're just going to say, we have this fixed formula, we're going to target a price stability with respect to the US dollar with this kind of slightly floating mechanism to have an adjustable interest rate and that's it. But what happens if, let's say, 20 years from now, the US dollar collapses, right? Like, this is, I mean, obviously, you know, I tend to be kind of critical of, you know, the Bitcoin maximalist types that say this is definitely going to happen, but also like

• 32:39Speaker 02

  I'm definitely not the type to say that there's a 0% chance this is going to happen. So if the US dollar collapses in 20 years, then like RAI holders are not going to want a US dollar, right? Because the US dollar is just going to be something that's going to, you know, increase at a rate of like 10,000% one week and then 40,000% the next week. And so like they're, in order for RAI to continue to be a useful product in that world, it has to basically make a decision and say like, no, we're violating our original social contracts and instead of targeting the US dollar, we're going to switch to, you know, either targeting some other national fiat that somehow stays stable or potentially just like making their own CPI and targeting that.

• 33:21Speaker 02

  And your governance, in that kind of extreme situation, you know, the governance is going to need to be able to make that kind of decision. So. Like how that could be done is um one of those uh also very challenging questions. Um but you know, this is the sort of thing that like decentralized governance could be really useful for. Because it's like especially decentralized governance. Um because uh it's the sort of thing where if you require lots of different participants to agree in order to make that kind of big step. Then like you can be confident that if there really is an emergency that demands that kind of a drastic move, then it will, then it can happen.

• 34:04Speaker 02

  But if there isn't an emergency and someone says like, hey, guys, you should stop targeting the US dollar. You should like start targeting, um you know, Bob's like uh in in index Emporium number four, two, five, five. Um then uh you know, people, even if like he manages to corrupt a whole bunch of insiders. Everyone else is gonna go like WTF made and it's not gonna happen, right? Um so that's uh you know, like that's another good example of where a governance can be needed. But and like decentralized governance specifically could do even a better job than governance. So that's controlled by a centralized team because you know, if the governance is controlled by a centralized team, then the centralized team. Like even if some feature is intended to be only used in an emergency, well, the centralized team chooses what the emergency is.

• 34:48Speaker 02

  So you know, you don't have that much protection.

• 34:53David Hoffman?

  Every new technology that we invent as humans brings something new to the table. And uh as we know, blockchains, crypto economic systems are coordination technologies. They bring new coordination tools and let's us play with them. So what governance or decentralized governance tools has specifically blockchains like Ethereum actually unlocked for us? Like what are the new mechanisms of governance that we have now that we didn't have before?

• 35:19Speaker 02

  Hmm. Um so things that you can do with Ethereum in general. Um I mean, large scale votes are definitely one thing like there obviously exist other platforms to do large scale votes. But just large scale votes where you know, the outcome is verifiable, where the outcome is actually tightly coupled to the implementation. So you don't have to like trust someone to execute the outcome once the outcome gets made.

• 35:44Speaker 02

  That's like a simple thing that, you know, can be done. You could even like use something like MACI as that a project improves over time and make the votes like privacy preserving and coercion resistant. That's, so that's one thing that you can do. Other things that you can't, other things that you can do like voting with more advanced kinds of algorithms like quadratic voting, quadratic coordination, pairwise bounded voting and all of these fancy, fancy types of voting. Another thing that you can do is, well, actually, one of the nice reasons, one of the nice reasons why blockchains are quadratic voting friendly is that quadratic voting inherently involves like making payments in order to vote. And blockchain just happened to have a built in payments platform.

• 36:29Speaker 02

  Another thing that you can do is other kinds of mechanisms that kind of mix together markets and democratic approaches. Like one example of this is retroactive public goods funding that I've been a big fan of recently. Like basically, you know, you have a kind of voting based DAO that funds public goods retroactively. So after they've already been finished and they've already had some positive impact. And then if you want to use retroactive public goods funding to get grants for something that you want to do, then what you can do is you can create a project token, you can announce that, you know, this project token reflects this, my, like my attempts to make this particular thing happen.

• 37:13Speaker 02

  And I'm going to premine some of that token to like my team and people that I think are like responsible for making this happen. Obviously, if the team disagrees, then they can kind of fork off and make their own projects token. And then I can also sell some of that project token to people who wants, who wants to provide seed funding to this team, right? And then once the retroactive, once the project has a positive impact, then the retroactive funding DAO can choose to basically use its funds in order to buy up the project token. And then like anyone who participated in building the project and also anyone who bought the project tokens to give seed funding ahead of time, like they both. Ends up getting rewarded, right?

• 37:55Speaker 02

  So in that case, like you have a democratic mechanism for funding thing like for like doing this kind of end stage retroactive funding, but then you have a market mechanism for a kind of carrying over that end stage funding into figuring out what what things are actually need funding in this stage. So that kind of like mixing of kind of market mechanisms and voting mechanisms is something that I think blockchains are very uniquely friendly to as well. So, you know, we have a lot of tools.

• 38:28Ryan Sean Adams?

  This kind of gets into like some of the solutions that you're proposing toward the end of of the article, right? Like different ways to govern some of these applications besides just a simple coin vote. We talked about the hazards of coin vote. I, you know, I want to get maybe to the to the to the base layer, though, here. It's like just with the advent of Bitcoin, say, and then later Ethereum. I mean, they're governed in a similar way. Maybe we would call this ungovernance. Maybe we would call this off-chain governance. I'm not sure. It's interesting because it doesn't really fit in a, I don't know that there's a name for it that people would understand, like what is blockchain governance? We know what democracies are.

• 39:09Ryan Sean Adams?

  We know what, you know, autocracies are and theocracies and all of these things. We know what shareholder vote is in in corporations. But like what fundamentally is Bitcoin's governance or Ethereum's governance? Would you call it ungovernance? Would you call it rough consensus off-chain governance? And what are the characteristics and properties of it?

• 39:28Speaker 02

  So this is actually the topic of a post that I wrote way back in 2018. I think this is the other one called a notes on blockchain governance, where I basically talk about how like viewing governance as a kind of what I call a decision function. And basically, some kind of like mathematical function that takes inputs and possibly payments from different participants. And then like, you know, you have a piece of code that then computes an output and then output is guaranteed to be executed like that. It doesn't even necessarily cover like everything like what we want out of out of governance, right? Like it's Well, the way that governance of the systems ends up working is much more subtle, right?

• 40:09Speaker 02

  Basically, what happens is that like at the bottom layer, you have this system where anyone can run whatever software they want. Normally, people agree with each other, but then if some people really disagree with the majority, they can fork off and they can do their own thing. And forking off is obviously messy and expensive, but if that's the only alternative to like accepting some changes that you consider really unacceptable, then like people are going to do it, right? So that's like the bottom layer. Then the layer above that is, well, let's take that kind of layer zero and let's build coordination mechanisms to ensure that the like the nastiest outcomes that layer zero could lead to and end up not happening, right? So let's build mechanisms to ensure that like most of the time when there is possibility

• 40:54Speaker 02

  of agreement, people do actually end up agreeing instead of like resort resorting to their, you know, natural right to exercise mutually assured destruction. And that's something that, you know, we, you know, we do with like all sorts of community signaling. There's all court dev's votes. There's, you know, informal kind of signaling, coin votes. There's a kind of implicit votes on GitHub. There's just conversations. There's all sorts of these mechanisms by which people can kind of gosh, you know, if some proposal is looking like it has broad agreements or looking like it doesn't have broad agreement.

• 41:37Ryan Sean Adams?

  So on on on blockchains, we have this base layer of italic of like, it's the right to fork. It's the right to opt out, right? That's so important. And the the next layer above that is basically this this rough consensus idea, all of these different, you know, signals, social signals that feed into some signal as to whether the community will accept a change or not, or whether they'll fork, whether they'll resort to kind of violence in that bottom layer. I'm curious, even with these two layers, maybe there are other layers you wanted to describe too, but are these two layers new for humanity? Is this a new thing that wasn't possible in the analog world?

• 42:12Speaker 02

  I think to some extent, the analog world has this as well, right? So like, let's say, like, you know, take the US as an example, like, let's say the 2020 election went even crazier than it actually did. And let's say, for example, that, you know, the Supreme Court just decided to

• 42:33Speaker 02

  Make a nine out of nine decision that, well, let's go crazier than 2020. The Supreme Court was given drugs by aliens, so they made a nine out of nine decision that, I don't know, can we like pick a crazy guy like Kim Jong-un is the president of the United States, is the president of the United States of America, right? Like technically, you could argue that like, you know, quote legally, the Supreme Court decides what the law is, and then, plus, like, I'm not sure exactly on the details of like, who technically has to agree, but the aliens can drug a couple of other people, and they could make them just like decide this, just some incredibly crazy thing, and then, you

• 43:16Speaker 02

  know, if your model of governance is that it's a decision-making function, then like, hey, the law says that like, if these people say this, then like, that's the decision that has to be executed, and all the Americans are gonna have to bow down to Kim Jong-un now, but, you know, the reality is that if that happens, then, you know, the red and the blue are both gonna be on the streets, and they'll be on the same side of the streets, and, you know, they're gonna storm all the buildings, and, you know, the people who got drugged by aliens, despite their legal power, are gonna find, you know, themselves, you know, hopefully it'll be more polite than literal ropes around their necks, but they're not gonna be in a good place, and even the military is probably, like, even if you drug

• 43:59Speaker 02

  the, the aliens drug the guy at the top of the military, like, you know, they're gonna rebel as well, right? So, it's not gonna work out well.

• 44:06Ryan Sean Adams?

  It's a coup, it's a revolution, you know, that's what a hard fork is in the real world, right?

• 44:11Speaker 02

  Right, exactly, so, it's, like, this idea that the, like, what actually happens in governance never matches what is formally described to happen by any kind of like, attempt at a kind of math-like description of the legal system, like, that's something that exists in, I think, lots of contexts today. In other contexts, that's a bit less extreme and less violent, so, language, like, you know, who decides whether or not the word literally can be metaphorically?

• 44:43Ryan Sean Adams?

  Urban dictionary.

• 44:45Speaker 02

  Right, or if I, like, if I start using the, like,

• 44:52Speaker 02

  Um, I don't know, the word amends for am not like that's something I was I was taught I should not be doing in school, but like, uh, I don't know. Uh, like I personally am it really the type to care to take care about such things. So if I start using the word. And if a bunch of other people like the words, then like, guess what? It becomes part of English. Um, so. There definitely are lots of like rough consensus, like based constructs in just all sorts in society and all sorts of places as well. Um, I think where blockchains are interesting is that they, yeah. They seem to like occupy this sort of niche that's maybe somewhere in between how, um, let's say national governments work. And where and how something like language works, right? Like, I think.

• 45:37Speaker 02

  Corporations, they tend to be closer to following the decision function of you of governance, because like you can't make a revolution because like, um, ultimately. You know, like people end up, uh, uh, end up suing each other and then the court, um, accepts, uh, you know, it comes up with a judgment and everyone makes the judgment. And that's like ultimately kind of the like, that's ultimately the last resort. Um, but. You know, in the case of like, uh, of a country like that kind of last resort doesn't exist, but you know, still at the same time, like, you know, there are. Like it's, it's only in these very difficult and extreme cases that this sort of like extra legal pressure.

• 46:17Speaker 02

  And like can influence the outcome, but in the case of a blockchain, right? Like it's this sort of like informal pressure. Um, and this knowledge that like, you know, if you piss the community off, they're going to fork like that's something that. Has a lot, it definitely has a lot more significance. But at the same time, the difference between a blockchain and say the English language is that in English language, forking is just trivial, right? Like. Like the, the three of us can just decide that the word amends is like an okay word to use.

• 46:45Ryan Sean Adams?

  It's okay with me. Is it okay with you, David?

• 46:47David Hoffman?

  Yeah, I'm a fan.

• 46:49Ryan Sean Adams?

  Am it? Okay.

• 46:50Speaker 02

  Yeah, uh, well, uh, you should have said I am an opponent.

• 46:55Speaker 02

  Yeah, um, so the, I.

• 47:01Speaker 02

  Right, and the three of us can do that and like anyone else who wants to join can do that and anyone else who doesn't want to join cannot and like there is very little a kind of like net like social damage that comes as a result, right? Blockchain are not quite as extreme, but they're sort of in the middle. Um, so they do occupy this interesting space and I think the fact that they're not quite so extreme does allow them to do important things that languages can't do, right? Like blockchains can create like maintain rough consensus on like valuable assets and on like who currently controls valuable assets and who currently has like some position with respect to some kind of a valuable asset. And that's not really something that a language can do. Um, but so, yeah.

• 47:44Speaker 02

  So in some sense, like blockchains are both a different combination of existing ingredients, but they're also, but they are also something that's genuinely new and offers new possibilities.

• 47:53Ryan Sean Adams?

  Yeah, it's super fascinating. It's like for forking a blockchain, of course, is is it's it's a bloodless, you know, revolution, if you will. And you know, because blockchains are generally open source, you know, technology. It, you know, it is fairly easy to do essentially. It's it's always an option. I think that might be part of the the solutions you get to as well. It's like making these things easier to fork. But I I want to ask about this because so we have this ungovernance, we have this off, you know, rough consensus sort of mechanism at the at the layer ones of blockchains. And that feels like a a good mechanism to use at layer one.

• 48:35Ryan Sean Adams?

  But maybe you could comment on that. Why is kind of ungovernance the right to fork a good mechanism for layer one? And then why does it feel like it's just not a good mechanism for many of our DeFi apps? Like, it feels like we need some more significant governance for something like Maker Dow, maybe not RAI, but like for Maker Dow, there are some decisions to be made that can't be achieved by rough consensus and it feels like we we need token vote. So can you talk about that?

• 49:01Speaker 02

  I think the difference there is actually pretty similar to what I just, one of the examples I gave a couple of five minutes ago, which was like corporations versus governments, right? Like in a corporation, if there is a dispute, at the end of the day, there is this, uh, like, you know, there is a legal process and ultimately people can see each other and there is this kind of court system as a layer one that you can appeal to. Whereas in the case of a government, like if there is a disagreement about the law itself, then, you know, well, ultimately it, it goes down to some of these kind of more raw and chaotic kind of extremities that we were discussing.

• 49:36Speaker 02

  Um, so in the, like basically the fact that, um, applications like, like corporations in a nation state, like they are a layer two that sits on top of a layer one. Um, like means that, and also the fact that they control, um, external assets, right? Like Maker Dow controls ETH, right? And so the problem is that if you try to just make a revolution inside of Maker Dow and fork, the thing that the community like accepts as the legitimate Maker Dow, then the problem that you get is that, well, even if you, you know, you have this community agreement that the new fork is, you know, is the legitimate Maker Dow, well, guess what? Who controls the ETH ultimately is dependent on like what the code of the smart contract says.

• 50:22Speaker 02

  And so like, you better hope that the code of the smart contract is damn good at actually reflecting what the community's values are. Um, and like, that's a hard problem. And in that case, like, that's, uh, the problem that you actually do have to go and solve, right? Whereas like if a layer one does, um, does on-chain governance and the on-chain governance screws up, well, you know, you can still do a, uh, do a fork to, um, you know, you could get around that on-chain governance. Whereas, uh, with a layer two, like, you know, if the layer two gets, gets, or if the application gets hacked, then, you know, the application is screwed. If it, uh, like you can't fork the application even in that case. Well, you can sometimes. So like, for example, one of my examples was like if ENS gets hacked, right?

• 51:04Speaker 02

  Then, well, okay, like, maybe there's money inside of ENS that would get stolen, but like people, like, everyone who currently pays, uses the ENS system, they would just download updates to their software that start pointing to a fork of ENS. And so that situation would result itself pretty peacefully, right? So the question is like, is the app, does the application control internal assets? Or does it control a kind of externally defined assets, right? And like a corporation inside a nation state, like if the only thing the corporation controls is the corporation's own shares, then like theoretically, we don't even need a legal system. Because like if there's a dispute, then you know, you can fork the corporation and the fork would have new shares. But corporations, they usually own like

• 51:47Speaker 02

  nation state defined dollars, the nation state defined office space, nation state defined intellectual property, ICANN defines domain names, right? Like corporations own the kind of like external capital in the same way that applications on Ethereum often own external capital. And whenever something owns external capital, then like you can't resolve governance with a purely internal forking system. And so you do need to like, you know, quote unchan or kind of like codify the governance of some kind.

• 52:18David Hoffman?

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• 53:02David Hoffman?

  So you can set and forget your DeFi trades and they will go through automatically while you're away. New to Matcha is an integrated fiat on-ramp. You can purchase crypto directly with your credit or debit card and have that fiat be instantly traded for any token that has liquidity. When you're making a trade, head over to matcha.xyz slash bankless and connect your wallet to start getting the best prices and most liquidity when you trade your crypto assets. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries,

• 53:46David Hoffman?

  just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswap ecosystem is the Uniswap Grants Program is now accepting applications for grants. We have been saying this for a while and we'll say it again. DAOs have money and they are in need of labor. If you think that you have something to contribute to the Uniswap DAO, apply for a grant to Uniswap. Just look at the size of the Uniswap Treasury. It's almost $3 billion. This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap DAO? No matter how big or small your idea is, you can apply for a UniGrant at unigrants.org and help steer Uniswap in the direction that you think it should go.

• 54:31David Hoffman?

  That's exactly what we did to get Uniswap to be a sponsor for Bankless and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless. So we've gone and talked about what parts of a tech stack need what kind of governance. Layer ones have rough off-chain governance, but when we talk about applications on the layer ones, that's when we have a wider array of possible governance strategies. We've also talked about why we need to have governance in the first place and why we can't just completely strip away all governance. Sometimes things happen that needs to be updated. And as we've been circling around, we were coming to this point of conversation is to, okay, we have a bunch of things in DeFi on Ethereum that do need to have governance

• 55:14David Hoffman?

  and they are generally all just using coin votes for governance. But you are advocating that there's more diverse and more rich possibilities that we can get into to have better governance. But let's talk about why coin voting sucks. What options do people have in DeFi that kind of taints or ruins the power of coin voting?

• 55:38Speaker 02

  Right, so the thing that coin voting really relies on for kind of the philosophical arguments for why it makes sense is this idea that it couples economic interests and governance power, right? Like, coin voting governance is supposed to work because the people with the coins have the votes, and so the people who have economic interest in the protocol's success are the ones that have the governance power to make the success happen. The problem is that financialization is extremely good at separating out like different parts of an asset if the people in that asset want them to be separated. And like, most people, like, because each individual person only has such a tiny and

• 56:22Speaker 02

  insignificant share of the governance power, most people do not value their governance power that highly, right? Like, even if there aren't any attackers, it's very hard to get people to be willing to vote at all. Like, voter participation rates in most coin-voting systems are tiny. And then if there is the ability to just kind of like split up your token that has the economic interest and the governance power, and say like, there's gonna be token A that has just economic interest, and token B that has just the governance power, and then you can go like, rent out your token B and keep your token A, like, that's a deal that a lot of people are going to find attractive, right? And financial systems are just inherently about doing this kind of unbundling. And so, you know, of course, there's going to be lots of different ways to do that kind of unbundling.

• 57:06Speaker 02

  In my post, I talked about two specific ways to do the unbundling, right? Like, one specific way is you just have a smart contract where, like, it's basically a wrapper token, right? Like, the same way, you know, you wrap your ETH and you have WEF, you can wrap your maker and you have wrapped maker, except this wrapped maker has this very specific property of that, well, it's now the wrapped maker contract that controls the, that kind of technically owns your maker and has the rights to do governance with the maker, and so the wrapped maker, and the wrapped maker contract is just gonna like, auction off like, every single vote, and let's say it's gonna give half the auction revenue to whoever wrote this wrapper contract and half the auction revenue to you, right? And so, you know, every maker holder that is gonna like individually find it in their

• 57:49Speaker 02

  interest to just stick their maker into the wrapped maker contract because it pays interest, but actually, like, well, it's concentrating all their governance power, like, kind of collectively in the hands of a few potentially unaligned actors, right? So that's method one. Sometimes people find method one unrealistic because it just requires token holders to do something that's just feels so blatantly unethical. But like, which is fair, right? Like, even if token holders, like, like even if the amount, like they are suffering from this kind of tragedy of the comments broke problem where they have the ability to sell their governance rights to the highest bidder.

• 58:29Speaker 02

  But like a lot of them, they do kind of like feel this altruistic concern for Maker Dow as a whole. They don't want to, they want to feel like they're, you know, part of this exciting community and they're not selling them out. And so like, you know, they might not want to stick their maker into the, into the system. Also, sometimes like if people stick their maker tokens into this wrap maker contract, well, other people might like analyze the blockchain and figure out who they are. And then they're going to have social consequences of all these things, right? So you might argue that for these reasons, like this kind of super blatant bribing attack is unrealistic. But then there's also a much more subtle governance attack, right? And the much more subtle attack basically says, well, let's just use like DeFi lending protocols, right?

• 59:11Speaker 02

  Like, let's say I have some maker tokens, then one thing I could do is I could use my maker tokens and like, or I could lend out some of my maker tokens and I could get paid interest. And then if I am an attacker who wants to like participate in some governance decisions, then what I'm going to do is I'm going to take a whole pile of ETH and I'm going to stick that ETH into the, into a CDP. And then I'm going to borrow some maker and I'm going to use my borrowed maker to have, to do whatever governance things I want to do. Now, if you analyze that situation, right? The person who borrows the maker, they don't actually have an economic interest in maker because whatever the price of maker is, they're going to have to pay it back, right?

• 59:54Speaker 02

  So the person who is borrowing the maker, they have governance power, they do not have economic interest. And then the person who is lending them the maker, the person who actually stuck the maker into the DeFi lending system and is getting interest rates off of that. They, they still have the economic interest because they still have the right to eventually get that maker back. But they do not have the governance power because at that particular time that maker is in someone else's hands. Um. So one person has governance rights but not economic interest, the other person has economic interest but not governance power. And so even though it does not look like a bribe, the the the practical consequences are exactly the same as it as they are in the uh in the Raft Maker bribing contract case, right?

• 1:00:37Speaker 02

  So there and that's just decentralized bribing. There's also like examples of centralized kind of de facto bribing that already happens. Like one example is that lots of people store their coins on exchanges. And if you store your coin on an exchange, um like that exchange offers you personally a bribe in the form of services, in the form of convenience, and in the form of like fast ability to trade and all of those things. Um but then the exchange like has formal control over your tokens and the exchange can like basically controls the governance power, right? You have the economic interest, the exchange has the governance power. And now a lot of the time exchanges say, oh, we're going to be nice and we're going to not either

• 1:01:18Speaker 02

  not participate in governance or we're going to run internal polls among our users. Um and and so we're we're going to kind of like pass through the governance power, but sometimes exchanges do exercise it, right? I yeah, I talk about the Chuan steam situation where Justin Sun ended up like basically making his final attack by cooperating with exchanges and using coins that people had inside of exchanges in order to vote. Um so these kinds of things do actually happen, right? So basically, like the conclusion is that like once because of just all of these different forms of like financialization and like just the DeFi and C5 being really good at unbundling, like you just have you end, like even though the system is supposed to bundle um governance, power and economic interest, it ends up

• 1:02:03Speaker 02

  it can easily end up not bundling those two things anymore. Um and once it stops bundling those two things, then like basically governance just becomes an auction and every decision gets sold to the highest bidder and like that can start looking um ugly very quickly.

• 1:02:19Ryan Sean Adams?

  Kind of sounds like how Congress maybe works to the skeptic. I'm not sure. But like, so there are these issues, but like also there are issues I think people see every day like whales kind of controlling the vote in many of these systems. And maybe you'd argue that's a good thing because they have the most economic incentive. But there are cases where like, you know, I don't know all the particulars, but like, let's say there's a raid on Uniswap, right? And this including set of actors rewards, you know, with nepotism, their friends or their family, and they award these people a specific Uniswap grant, for instance, rather than another set of people. So there are issues like that, too. I'm curious, Vitalik, though,

• 1:03:04Ryan Sean Adams?

  like, where do we go from here? So we have, it seems like, these two governance forms that are active and working in blockchains. And that is the rough consensus, you know, ability to fork. And then we have for everything else, really, all the app layer that's built on cryptocurrencies on Ethereum. It's all token vote. But like, where do we go from here? You mentioned a couple of solutions. There are a few more maybe we should cover. Like, is there a way to do some sort of one person, one vote? Proof of participation? Do we need decentralized identity first? What are some of the solutions that the community should pursue?

• 1:03:45Speaker 02

  So I think like, before I get the solutions, actually, I wanted to comment on the whale thing a bit because like, the whales are an interesting double edged sword, right? Like, one of the points that I make in the article is that I think the reason why, despite all of this economic theory that says that coin voting governance should break, coin voting governance mostly has not broken so far, is because in practice, the token holdings of a lot of those projects are very centralized. And like, if more than half the supply is controlled by 10 people and the 10 people know each other, then like, each of those 10 people is not going to go betray everyone else by sticking their to a wrap maker contract and collecting 1% interest, right?

• 1:04:23Ryan Sean Adams?

  There's off-chain reputation at stake.

• 1:04:25Speaker 02

  Yeah, exactly. And those opt chain reputation effects are strong precisely because there is, there are these kind of whale boys clubs that control a large portion of the, of the supply of these systems, right? Um, so you have this effect where the systems are like, secure from being outright attacked in part precisely because of the centralization. Um, but at the same time, like the centralization is something that has genuine risks, right? Like, one example might be like, you know, what if there is some decision in the future to, like, stick mandatory KYC into one of these applications? And the whales end up being in favor of it because, you know, the whales have close connection to, say, CFI interests that wants to be friendly with whoever those regulators are,

• 1:05:10Speaker 02

  or whales, um, like, they, they care about, you know, institutional adoption and, and the institutions, like, they, they want a, like, a system where, you know, kind of, quote, unidentified actors can't participate and all that. And so, you could easily have a small group of whales that will want decisions to go in that one direction of just accept, like, throwing in mandatory KYC to just to use the platform. But while that's something that the rest of the community does not want. Um, and so, there are like these kinds of real, like, misalignment risks from kind of coin, like, coin centralized coin voting, or I guess vote coin voting with concentrated coin holdings.

• 1:05:52Speaker 02

  And, you know, we do want something better, um, but at the same time, you know, we want something better that's not attackable. So what is that thing that's better and not attackable?

• 1:06:01Ryan Sean Adams?

  Yeah, tell us.

• 1:06:02Speaker 02

  Yeah, so I gave a couple of ideas. Um, one of those is, um, incorporate kind of like one person per, uh, or one vote per person voting of some kind. Um, so I talk about proof of humanity a lot, right? It's this project where, you know, if you're a human, then you can go, like, put up your, your profile, and you can, you basically get, like, essentially an NFT that says, like, hey, you are a unique person. Um, and that's something that other applications can then link into and they can say, like, hey, like, for example, you know, if you are one unique person, then you can get up to one unit of governance power. Um, or if you are a unique person, then, you know, you get, like, there's even a UBI token

• 1:06:43Speaker 02

  that just, like, gives some number of UBI coins to every person, like, per, uh, period. Or I think it's like, it might even be given continuously. And so you just have like actual sort of formally democratic kind of like one per person governance. That's one approach. My concern with one person, one vote is that one person, one vote fails to distinguish between a kind of different levels of commitment that different people have. And like, like in any of these systems, like there are people that should have hundreds of times more voting power than other people because those people like care hundreds of times more, put hundreds, uh, put hundreds of times, um, like bigger chunks of their lives into the project. And like, that's something that also needs to

• 1:07:25Speaker 02

  be recognized, right? Now, coin voting does try to recognize this, but it recognizes it in a way that also ends up empowering whales a lot. Um, one idea that's interesting is, uh, like you could have quadratic, like if you use a proof of humanity things, you can have quadratic coin governance. So you can say, you know, if you have N tokens, then you have square root of N governance power. And that would be an interesting, um, kind of hybrid that gets us the best of both worlds. Now, I think like in that kind of situation, you know, to prevent this kind of governance financialization that I talked about, you would need to use like something like Macy or like one of these anti collusion gadgets to prevent people from like basically like credibly selling their vote, their governance

• 1:08:08Speaker 02

  power to other people. But, you know, these are things that are being worked on already, right? Which is great. Um, so that's one idea. Um, another idea is instead of having governance be done by token holders, you could have governance be done by like what I would call badge holders, like basically holders of something that is like some kind of non-transferable token that gets allocated to participants that are kind of decided like somehow, like it could be bootstrapped with some centralized and there could be some mechanism for updating them over time. Uh, they're just somehow selected as being like just good contributors that provide like important governance input. And like that could be used as just like

• 1:08:51Speaker 02

  providing a kind of an alternative chamber of governance that's like reasonably like both high quality and dedicated to the project and disconnected enough from the token holders that it can provide a check and balance in case like the, um, In case token holder governance just goes in a completely crazy direction. Um. So that's another idea. A third idea is like you can say, well, we're going to have coin governance, but in order to limit the harm that it can do, we're going to try to limit the power of coin governance in certain ways. And projects do do this to some extent, right? Like, for example, in Uniswap, the coin governance can only do like one thing, which is it can only issue new uni tokens.

• 1:09:33Speaker 02

  Um. And like you can basically turn on, turn the fee on it, like the 0.05% portion of the fee on and off. Um. And in that case, like the good thing is that if the coin governance completely breaks and someone can just fork the token and they can fork Uniswap, they can still fork everything. And like it's not that, even until the fork happens, like Uniswap continues to be useful. Um. The people who like put their liquidity, um, uh, shares in, like they can still take their liquidity shares out. There's no way for the governance to steal the liquidity shares. So the power that the governance has is, uh, uh, very limited. Another example of limited governance power is that a lot of DeFi projects, they have a time delay before the, any governance decision takes effect.

• 1:10:16Speaker 02

  And that time delay gives people time to like move their money out if a project breaks. Now, a lot of the time, these time delays are fairly short. They're like one day or one week. I personally am a big fan of time delays that are much longer. Like I'm a fan of time delays of at least two months.

• 1:10:33Speaker 02

  Like basically you want something that's long enough so that even lazy users who bear, who only pay a little bit of attention to the protocol have like enough time to discover that like, hey, there is something crazy happening and they should consider moving out of the project and moving on to a fork.

• 1:10:48Ryan Sean Adams?

  But some of these trade offs are like, don't they affect your decision making, um, like speed?

• 1:10:54Speaker 02

  Yeah.

• 1:10:55Ryan Sean Adams?

  And, and doesn't, does, can't that potentially put a protocol in a, an uncompetitive position relative to its peers?

• 1:11:04Speaker 02

  They can, but I think in general, if something is decentralized at all, then it's not competing on rapid, day-to-day scale agility. It's competing on the ability to provide its users promises of stability. And I do think that in early stages, while a product is still rapidly evolving, it makes sense to have shorter time windows. But I personally am a fan of time windows that potentially are even programmed to increase programmatically. Maybe the time window should be proportional to a percentage of the time since the project launched. After a year, it's a week. After two years, it's two weeks. After three years, it's three weeks, or something like that.

• 1:11:45Speaker 02

  Basically, I think projects, there is a need for rapid decision-making, especially in early stages. But the early stages should always be designed with the mindset that eventually the rapid stage is going to end and the project is going to transition into something whose rules are more focused around giving people stability than being able to adapt really quickly with the changes in circumstances in one week instead of six.

• 1:12:16Ryan Sean Adams?

  So Vitalik, I feel like we've extensively covered this topic of decentralized governance. And it seems like the key message is like, hey, let's not build this entire DeFi ecosystem, this entire app layer ecosystem on coin voting. It's brittle. And maybe there are some other mechanisms the community can start experimenting with. Let's not just use coin vote as the shelling point. But I want to pull back another thread that you were talking about earlier when we were talking about the ability of users to opt into software, download their own software. This is something we're kind of seeing, and we see maybe every bull market,

• 1:12:56Ryan Sean Adams?

  this conversation of when transaction fees start to go up because there's demand for block space. Then inevitably, there come a number of projects who just say, hey, we can create more block space. We can solve the scalability trilemma. You know, this decentralization thing, like, maybe it's not so necessary. And maybe it's not even necessary for users to have the ability to run their own nodes. Maybe scalability of transaction speed is more important. You wrote another post called "The Limits of Blockchain Scalability", that maybe we want to tug on a little bit. But this was like in response to Elon Musk. I think we had triggered this conversation where he's talking about Doge speeds.

• 1:13:41Ryan Sean Adams?

  And he said, "Ideally, Doge speeds block time by 10x, increases block size by 10x, and drops fees 100x, then it wins hands down." Right? It's kind of this notion like, hey, we're coming to crypto and we need more scalability, and I've got the solution. We just increase everything by 10x or 100x. Can we have a conversation about the limits of scalability? I think, in fact, that's your post title. But maybe let's start here. Why is it so important for individuals, individual users, to have the ability to run nodes? David and I were just in a conversation with, you know, a group.

• 1:14:24Ryan Sean Adams?

  We're talking about another non-Ethereum blockchain. And we're having this debate as to whether it indeed is important for individuals to run nodes. They make the point that it wasn't. We can get into some of those critiques. But from your perspective, why is it so essential for individuals to have the ability to run non-validating blockchain nodes?

• 1:14:46Speaker 02

  So, the thing that a blockchain node does, I think non-participating might be better than non-validating, because the thing that the node does is it validates, like in the sense of verifies every block that's coming in. And it checks that everything in the blockchain actually is happening according to the rules. Right? So if, like, Ethereum users all switch to using Litecoin clients, for example, then what would happen is that...

• 1:15:16Speaker 02

  The like more than 50% of the consensus participants, the miners or stake validators could just come together and say like, hey, you know, we're going to make a change to the rules. Like, we're gonna like, say, throw in a dev funds that distributes like an extra 5 billion coins to our friends, or we're gonna double staking interest rates because we decided that we need that, or whatever. And users are going to be at an extreme disadvantage in like even being able to rebel against that change because like their clients are going to accept the blocks by default, right? Because a user does not

• 1:15:54Speaker 02

  see that the change was made and that the new blocks are no longer valid according to the old rules because all they see is the headers, like the users are by default not going to reject the new blocks. They're just going to kind of keep humming along as though nothing went wrong. And users are only really going to detect that something happened like possibly hours into the future, right? Like, maybe one community actor is going to be making an alert, and then, over the course of a couple of hours, that alert is spreading to spread over social media, and then a couple of hours later, more people are gonna wake

• 1:16:31Speaker 02

  up. And, well, by the time that users understand what's going on and they're really upset about it, basically, there will have already been like eight hours of blockchain activity that happened. And that like, there could have been really a lot of really important things that happened there. And like, well, guess what? There's going to be a large constituencies that are already going to be against reverting the chain. And it would be, the onus would be on the users to successfully coordinate reverting the chain, right? The onus would be on the users to make a fork. And even when the users make a fork, they would be disadvantaged in making a fork because, well, if the blockchain is big, then syncing the blockchain is hard and syncing the blockchain is gonna take like a week instead

• 1:17:16Speaker 02

  of an hour. And so, there's gonna be a huge amount of downtime before a fork can start. Basically, the entire game ends up being tilted heavily against users. That are that that are trying to rebel against that sort of situation.

• 1:17:29Ryan Sean Adams?

  There's no protection against the elites is is how you phrase things in your article.

• 1:17:33Speaker 02

  Exactly, like the game is tilted in favor of the elites winning by default. Whereas if you take something like Bitcoin or Ethereum, where you do have lots of users running notes. Ethereum, by the way, definitely can be better at this. And like a lot of the things like Stalwart Flyance, like for example, that we're doing are fundamentally about Ethereum becoming better at this. Like, like, basically, if you have at least lots of users running notes, then what's going to happen is that what's the, if the majority of these stakers kind of quietly agree on this protocol change and they push the protocol change through, then the, like, by default, the users are just going to see that those blocks are invalid and they're going to ignore them, right?

• 1:18:16Speaker 02

  And so when the users wake up, like what they're going to see is they're going to see that there's one chain and that one chain has like, for some reason, eighty percent of the stakers from their point of view just went offline, right? Like, all they see is they see their chain and they see the twenty percent of stakers or whatever it is that are still staking on that chain. And so they think, okay, well, eighty percent of the stakers went offline. When in reality, of course, eighty percent of the stakers are continuing to make their own chain that follows different rules. But the users, just by default, they, like, they might see some invalid block errors, but like, from the user's point of view, it looks extremely close to those eighty percent just going offline, right? And so here, the default is tilted very much in favor of like this cabal that wants to change the rules to lose it.

• 1:18:59Speaker 02

  And when the cabal loses, then, like, basically, like, they don't just, they end up, in the case of proof of stake even, like their validators would just all get inactivity leaps, they lose a huge amount of money. And for the rest of their users, like their user experience only experiences like a tiny degradation because, well, for like a couple of days, instead of having a block every twelve seconds, they're going to have a block every sixty seconds or whatever, right? And that's something that like, okay, fine, you know, the gas price goes up to two thousand way for a bit, but like, you know, the chain keeps on running. So it's a sort of situation where like, they, yeah, the default is tilted in favor of the regular users

• 1:19:43Speaker 02

  and people who oppose the fork not suffering that much and the people that tried to force the forks through, suffering a really huge amount. So.

• 1:19:53Speaker 02

  That the closer we can get to that world, the better, right? And the further away we get from that world, the worse. And so, so in order for that world to exist, though, it needs to not only be possible for regular users to run a node, but it needs to be easy enough for regular users to run a node. That regular users choose to do it and don't get too lazy, right? Like if the the amount of hard disk space needed for a node is 2/3 of your hard drive, then sure, you can technically run it. But you know, realistically, if you want to like have your video games on your on your laptop as well, then like you're not going to want to run your node. And so you're going to still feel like, eh, you know, whatever.

• 1:20:36Speaker 02

  I'm just going to go like hook up to a light client or hook up to an inferior or whatever. But if on the other hand, a node only takes up like 10% of your hard drive, then suddenly running a node is a much more reasonable value proposition. So that's the sort of like the sort of world that we want to live in, right? Like, oh, the world where running a node is something that's both possible for average users, but even something where users like can do it even if they're even if they're fairly lazy and that they're not that willing to like enter a large amount of inconvenience. And I think it's a world that we can get to. I think, you know, even with Ethereum blocks being as large as they are, like there's been, the Geth team has been doing an amazing amount of work on improving client efficiency.

• 1:21:22Speaker 02

  Stalostest could mean that you can have verifying nodes that do not require any hard disk space. State expiry could mean that the hard disk space required for even a state storing node goes down to like 40 gigabytes or something small. You know, eventually you could even, you know, we're gonna ZK snark the EVM. And so a node can just verify a snark instead of verifying transactions. The node would still have to verify data availability, but You know, we can get to a world where running a node is very easy.

• 1:21:53Speaker 02

  And even today, even without the fancy technology, Ethereum is still like much closer toward a world where running a node is easy than like almost basically any other of these kind of high blockchains that has a large amount of usage. So that's something that we want to preserve and build on.

• 1:22:14David Hoffman?

  Vitalik, I want to keep on actually parsing this apart, but I want to ask this question from a different frame of reference than what you were just talking about. You talked about how the Ethereum community could be better at running nodes and that's how there's something that you kind of aspire towards as a part of this Ethereum community is like we could all be doing this a little bit better. Then there's a relationship between like the culture that we want to have of the people that make up our blockchain with the actual technology that is a part of the blockchain. And so you talked about how like, okay, great, like we have, I have my computer and it has a terabyte of data storage. But I just have my computer. I don't necessarily have a computer that I specifically dedicate for all of its resources to running a node.

• 1:22:59David Hoffman?

  And so you're talking about making as a values choice for the Ethereum blockchain, you want it to make a, reduce the cost so that the individual user can be enabled to run a node. Where we've seen other, like I would imagine Binance Smart Chains, which are forks of Ethereum, or Avalanche, which is a fork of Ethereum, have just juiced up these, juiced up these metrics about running a node to the point where like it actually sucks up every computational resource that a computer has. So can you talk about the importance of establishing a culture around running nodes and what that can do for the security of a blockchain and as that relates to the hardware requirements?

• 1:23:39Speaker 02

  Sure, so the culture of running nodes basically just means that you know there just needs to be all of these different kind of infrastructure development and just like mindsets of users that just running a node is something that happens by default, right? And that's the sort of thing that you can have more of and that you can have less of. So one example of this, for example, like one way that Ethereum can improve is when the merge happens, right? The merge, one of the things that we have in the proof of stake design is a much better light client. And when we have a much better light client, so one of the advantages of this is that the light, it will be possible to just have the light client be inside of your browser, right? So you could imagine a MetaMask-like wallet

• 1:24:24Speaker 02

  or hopefully MetaMask itself upgrading so that instead of just trusting an inferior for information about the blockchain, like it asks for Merkle branches and it actually verifies those Merkle branches against the light clients and it checks that, you know, hey, like you actually have this light client that's run, that's kind of listening to the blockchain itself and getting the information about what the latest blocks are. Now, the light client is still not doing full validation, so it's still vulnerable to a 51% attack. But at the same time, it's still much better than, you know, being vulnerable to an inferior attack, right? So that's one of the, like, that's one example of a way that Ethereum can improve and I think, I'm hoping will improve after the merge, one of these kind

• 1:25:08Speaker 02

  of underrated benefits of the merge, to having some more of a node-running culture. Another example of this, of course, is that if it continues to become easier to just run a node on your local computer and like there's all sorts of these work streams that are trying to make that happen, then...

• 1:25:30Speaker 02

  That's some, you know, if more people start doing that, then like you could imagine more people just running their own node and then you could, you could just have more people, you know, instead of talking to Infura, they could just then have this, when they access some just random Ethereum applications through up to be like, they would just talk to their own node and their own node would give them information about the blockchain. I think that even offers them a potentially a bunch of privacy benefits. Like there's potentially even, even like good reasons for the user to do that, right? But once you have a critical mass of users doing that, then that just makes it much harder for like kind of proof of state validating elites

• 1:26:15Speaker 02

  or like pools or mining pools or mining elites to kind of do any kind of like hostile takeover without people's consent. And also like it reduces the decisive power that the like centralized providers have in deciding on like whether or not to adopt a hard fork that like isn't evil, but actually just is controversial. So like the more you have a node running culture, the more the kind of the layer zero, this kind of final layer of last resort in decision making actually ends up being a genuinely democratic one.

• 1:26:51Ryan Sean Adams?

  So Vitalik, we've had a number of conversations with, I would say maybe a high throughput chain apologists, right? Let's call them that, right? And so this is kind of how they would counter some of the things that you're saying, right? Basically, everything you said would be really nice Vitalik, if everyone ran their own node. But practically, they'll say, Vitalik, how many people do you know who actually run their own ETH node? And now you probably know a lot, of course, but like for the average person, are they actually running their node? That like the subtext is, hey, the battle is lost, right? It's too late. Ethereum already like relies very heavily on third parties

• 1:27:33Ryan Sean Adams?

  like Infura and Alchemy to power some of its app layer services. So it's kind of like Like if you can get past having all users have the ability to run their node. And I understand that that that would be a nice, I guess, balance of power. But if you can get past that and realize that's not practical in the real world, we could boost up throughput by a heck of a lot. And, um, you know, is that so bad? And is Ethereum like practically not allowing everyday users to run a note anyway today? And so why don't we just make that trade off? Is it kind of a trade off? Like, um, you've, you've written posts before about, you know, Bitcoiners not being comfortable with weak subjectivity.

• 1:28:14Ryan Sean Adams?

  But Ethereum is, for instance, you know, or is this, is there something even more important about users running their, their, their own nodes? That make this kind of an ironclad trade off that change shouldn't make? What's your take here?

• 1:28:28Speaker 02

  I think, um, like this gets back to the ConGave versus Convex post that we talked about a while ago. Right? Like, I think people think, people seem to keep wanting to trade offs to be binary, but they're, they never are. Right? They're like in the like a 10 people running Ethereum nodes is better than one person running an Ethereum node. A hundred people running Ethereum nodes is better than 10 people running Ethereum nodes. And 10,000 people running Ethereum nodes is better than a hundred people running Ethereum nodes. So like, I think there are more and more things that you lose the, the further and further away you get from Ethereum being a node running culture. So like just some examples of this, right? Is that you obviously lose a lot when you move away from Ethereum people running nodes by default.

• 1:29:10Speaker 02

  You lose even more when you move away from the ability to run a node as a hobbyist. You lose even more once you start thinking about not just users, but services, like even exchanges, deciding that they're too lazy to run a node. And, you know, it's, it's complicated to figure out how to like get this $5,000 server working and they have, and they're running like 57 different chains anyway. And so, and once you have services like exchanges of themselves making the trade off to be lazy and go talk to a centralized provider. Right? And then once you start talking about, you know, staking pools, um, like sharing node infrastructure, like the more centralized you get, like, you know, it's not, it's very much not binary. You either have it or you don't like either you could have all of it, you could have less of it, you could have even less of it.

• 1:29:55Speaker 02

  And the, the, the more and more you lose, the more, the progressively more and more dystopian the system gets. Right? I think like there might, I'm pretty sure there have even been cases in the wild of like, Either staking pools or exchanges or other kinds of major actors like that, just sharing node in a node infrastructure or just kind of offloading that to centralized providers, right? And like, the more of that you get, then the more of the set of people you have to like, you have to get on your side to make a hostile hard fork happen, like shrinks from, you know, 10,000 to 100 to 10, or potentially even lower. I think, I believe actually even in the case of EOS, I can't,

• 1:30:37Speaker 02

  I can't remember exactly, but I remember vaguely hearing about this sort of thing happening. Like, I remember hearing about this, kind of like, so, like basically running in EOS, though it took a lot of resources, and so even some of the validators, like even some of the like 100 delegates ended up being too lazy and ended up kind of outsourcing their node running to someone else. So, yeah, like, you know, you think that we've given up the fight, but no, like, there's way more fights that we could lose.

• 1:31:06David Hoffman?

  Vitalik, I recently asked you this on Twitter, and I'd love to dive into the subject even more. And it's becoming very, very in vogue to talk about this subject, because we're all kind of realizing that it's here, or at least the beginnings of it. So what in your mind is this metaverse thing? What is the metaverse?

• 1:31:27Speaker 02

  Hmm, I guess, like, it's this general concept, right? That, you know, you have the, like, you have the internet, but then you try to, you're trying to sort of take the internet to the next level with some kind of like, greater level of immersiveness, I guess. Now, what that immersiveness is, I think, is still really vague in a lot of people's minds. Like, to some people, it just means you have really good virtual reality, and you have like some kind of internet that feels like it's seamlessly integrated with the virtual reality. To some people, it refers to some notion of like shared objects and shared state. Like, you know, you can have like, you know, the magic sword from one game, and then you can port it over and like move it to your other game, or it can move your entire character to another, like, world

• 1:32:11Speaker 02

  and still keep the same skin and the same, like, other kinds of details. You know, you could even have these kind of virtual environments that all, that all talk to each other. Like, you could have, you know, NFTs that have, that get assigned a meaning that gets respected in like multiple people's kind of applications and sort of sub-universes.

• 1:32:33Speaker 02

  So I think like people will use the term for a lot of things and it's still very vague in people's minds. But there is this notion that this sort of interconnectedness is something that people want. And I think that's a big reason why something like Ethereum is really well suited to be as a central part of the metaverse. Like because Ethereum is this environment that's really well suited for like creating these objects. Where those objects, like once they you create them, they can then easily be moved around between different applications. And they can have like value assigned to them or value respected by different platforms. Like one interesting example of this, actually, I guess there was this salute project that like I think pops up a couple of days ago.

• 1:33:14Speaker 02

  Right? Like you have these NFTs and every NFT by itself is just like a bit of text, right? It's like, you know, like wizard's robe of the tiger and like magic sword of Excalibur or whatever, or whatever, whatever. And the like, okay, fine. You have NFTs that are a bunch of text. Then you have this ecosystem of all sorts of different like applications created by community members. Where those applications then assign meaning. Like it could be assigning pictures, it could be assigning like stats, it could be assigning all sorts of things to these objects, right? And so you have this basically virtual world that not only like

• 1:33:56Speaker 02

  it even goes beyond decentralized, decentralized land type things where like you just have like a decentralized substrate. You have a virtual world that's here that has collaboratively created laws of physics. And that's something that seems potentially really powerful, right? And now what people are going to do with the metaverse, I don't know yet. I mean, it seems like there's a lot of space for creativity, like I could use, I definitely see it becoming a really powerful like kind of interesting place to do all kinds of gaming things. What other things people will do, like, does it make sense to, you know, have

• 1:34:38Speaker 02

  like have a work meeting inside of the metaverse as opposed to just like doing it in a Zoom call or whatever, whatever? I don't know. I think people are still. Figuring that out, we'll see. You know, are we going to have like social platforms that are like more deeply connected as part of the metaverse somehow like are there going to be conferences and you know in the metaverse and what does that even mean like I think these things are still being figured out. I do think that the Ethereum like ecosystem has a big opportunity to be in the middle of this whole transition. So we'll see how that goes.

• 1:35:12David Hoffman?

  Well, I was about to bring up loot next, but you did it for me and took and ran exactly where I wanted to go with this. Right before we hopped on a call with you, I tweeted out loot is Ethereum coming full circle because Vitalik originally created Ethereum because of his World of Warcraft items that got nerfed by Blizzard. Now we have this metaverse that is actually extenuating the values that you wanted to have loot in your World of Warcraft account exists in the first place. And so like you said Ethereum is has the opportunity to be at the center of of this whole thing. And I recently just put out an article on Banclis that more or less talked about exactly like this where Ethereum is an object issuance platform and that's all it needs to be to

• 1:35:57David Hoffman?

  offer this skeleton or this structure to allow this metaverse to ascribe meaning and and purpose to the value to the objects that Ethereum has inside of its state. And so the the kind of the what I'm trying to wrap my head around is like is Ethereum like this first skeletal structure that allows for the metaverse to kind of like envelop around it?

• 1:36:19Speaker 02

  Yeah, and I think Ethereum is definitely like gone further than anything that we've that we've seen before, right? Now, again, in a lot of different ways, right? Like there's definitely been this kind of this rich object ecosystem in Ethereum. There's been this rich kind of gaming ecosystem in Ethereum and you know with like Dark Forest, ZK game and all these other things. There's been this rich, yeah, and also financial ecosystem. It's also a type of object, like actually seeing these different pieces like start talking to each other and it'll be very fascinating.

• 1:36:55David Hoffman?

  But talk as we come to a close here, and again, thank you for your time. We want to just kind of check in with the update on Ethereum. Since we last talked roughly three months ago, EIP1559 has come live with the London Hard Fork. Beacon Chain has launched. This new NFT mania has made Ethereum closer to a household name than it ever has before. So how would you describe Ethereum in its current state and history? Like, where are we in the course of Ethereum history? Help us find ourselves. Where are we?

• 1:37:26Speaker 02

  We're on the finish line to the merge, right? I think that's the most important thing right now with EIP1559 behind us. Like, there's basically nothing else that's like something like right in front of us that was that lots of people are really putting their souls into and focusing on. And EIP1559, I think, in addition to, you know, both correctly proving out the burn and correctly proving that it manages to actually really increase the user experience efficiency of sending transactions. I mean, I don't know what experience you've had, but like for me, it definitely feels like it's much easier to just send a transaction and get it included in one block. And I don't have to like worry about adjusting gasps anymore.

• 1:38:07Speaker 02

  But like in addition to all of those things, EIP1559 also proves to the world that the Ethereum ecosystem really is capable of making big changes. And like, it's not just vaporware. And I think people are increasingly confident now that like the merge is something that is going to happen too. It's a big shift, like it feels so long ago, but like even as little as late as like at the beginning of 2020, it was still a common Bitcoin maximalist position that like the merge will never happen, right? And you know, since then, they've obviously moved on to other arguments and like they've even, you know, just embraced the whole like, you know, a group mistake will happen, but it's bad thing.

• 1:38:49Speaker 02

  So, you know, when you make enough progress to force other people to shift their narratives, that's definitely something, a sign that you're doing things right.

• 1:38:59David Hoffman?

  So that was an answer from, I would say, like, the inside out of Ethereum, focusing on where Ethereum is as a protocol. But what about viewing Ethereum from the outside in? From the, we have government regulators looking at what's going on in DeFi, and we have, you know, cute penguins working their way into like the Zoomers, like, computers that they come home after school. What about from the the social level? Where is Ethereum in its acceptance as a social technology?

• 1:39:27Speaker 02

  I think it's finally breaking out, and I think it's amazing that it's finally breaking out. The NFT space did a lot, I think, because the NFT space showed a constituency other than finance people, that Ethereum has something really cool and interesting inside of it, right? Like, you have all of these artists that are selling these NFTs. Gamers are obviously increasingly interested. You have just, you know, this like ecosystem of people just doing all sorts of really cool and creative and fun stuff.

• 1:39:58Speaker 02

  Like, ENS is kind of slowly continuing to, you know, make its way forward. Maybe having a bit of a law just because there's high transaction fees and it's expensive to interact with anything. But, you know, once our rollups come online, which is very soon, I mean, Arbitrum, my understanding is that it still has training wheels, but it did launch a kind of available-to-everyone version a couple of days ago. So, like, you know, big congrats to Arbitrum, amazing progress there.

• 1:40:27Speaker 02

  The optimism, obviously, you know, they're continuing to run their, I think they have about $100,000 a day of transaction fees now. So they made that blog post, right, where they promised to put a large portion of ISeQuits revenue into retracted public goods funding. And, like, we're talking $100,000 a day for retracted funding, public goods funding. Like, that's bigger than the Bitcoin matching pool budget.

• 1:40:54David Hoffman?

  Bless you.

• 1:40:56Speaker 02

  Yes. So, rollups are increasingly being used. I think it is definitely, like, one of the places where I was over optimistic before is that I thought that, you know, once you had things like Loopring and ZK sync, people would just start adopting them immediately for payments. But I think what ended up happening is that we showed that, like, you actually do need the richer, kind of, fully EVN-capable ecosystem with all sorts of applications on a rollup for people to, like, really wants to jump onto one on mass. But that's actually happening now, and I think the jumping is happening. And once that happens, then the fees are going to go down and all of this kind of latent interest in just doing all sorts of, like, interesting and cool things on Ethereum, like, that's gonna really blow up even more.

• 1:41:41Speaker 02

  So, looking forward to that.

• 1:41:43David Hoffman?

  Yeah, we, we talk about packing our bags and going off to the Layer 2 suburbs because it's cheaper to live there. What technologies do you think we will finally be able to unlock now that Layer 2 is here that we wouldn't have been able to use because of the prohibitive computation and fees on the main chain?

• 1:42:00Speaker 02

  So, ENS becoming a much bigger deal, something I already mentioned, like, even, like, something like Status, for example. Like, I think, yeah, high ENS fees are probably one of the biggest barriers to adoption at this point. And at the same time, like, the other barriers to adoption, like how syncing between devices doesn't work well. And like, you can't really see people's names clearly yet and all these other things. Like, those are things that the team is also actively working on fixing, and they have a whole bunch of other awesome features that are in the works. So, I expect Status to become considerably more amazing once it both integrates Layer 2s and does all these other things.

• 1:42:37Speaker 02

  All of this gaming stuff, obviously, like, hopefully ZK game is not gonna be on a testnet forever.

• 1:42:46Speaker 02

  There's, like, basically all of these non-financial applications, attestations, like, just, like, claims being made about different, about different accounts, just much wider adoption of, like, Pope and Proof of Humanity and all these other protocols. Just, yeah, I mean, the entire non-financial Ethereum ecosystem being able to just be much bigger and be accessible to people who are not, like, basically already rich from having held ETH for the last few years.

• 1:43:16Ryan Sean Adams?

  Vitalik, ETH just passed its sixth birthday, so that means we're in the sixth year. And it's been a pleasure to have you on the podcast, sir. We've gone over so much, but I want to ask you kind of this final question. Each year maybe has had kind of a feeling, a trend, something about it that's new. 2015, there was launch, then there was Dow, maybe 2016, ICO 2017. What do you think is the word or phrase or theme for the year 2021 for Ethereum?

• 1:43:52Speaker 02

  I would say scaling, both in the sense of technical scaling of rollups finally coming online, also and in the sense of social scaling of communities other than finance caring about Ethereum for the first time, and just Ethereum becoming much more culturally mainstream. And of course, in the sense of Ethereum's layer one scaling things, not quite happening yet, but definitely like being on a path, getting onto the path where people are increasingly convinced that they're going to happen. So scaling in many ways.

• 1:44:29Ryan Sean Adams?

  Awesome. Vitalik, thank you so much once again for joining us on Bankless.

• 1:44:34Speaker 02

  Thank you for having me.

• 1:44:37Ryan Sean Adams?

  Guys, action items today. We have a couple of links for you to Vitalik's blog. The first is you got to check out the article we talked about in the beginning, "Moving Beyond Coin-Voting Governance" to get some of the details in written form from Vitalik. Also, read "The Limits to Blockchain Scalability." We touched on that in the second part. Of course, as always, risks and disclaimers. ETH is risky, crypto is risky, DeFi is risky. You could definitely lose what you put in, but we are headed west. This is the frontier, and we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:45:11David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our Alpha Leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly rollups, where we summarize the week in crypto and other

• 1:45:56David Hoffman?

  fantastic content. Thanks, everyone, for watching and being on the journey as we build out the Bankless Nation.