Devcon #2 - Justin Drake | The Next Steps for ETH

Welcome to Devcon 6. The first Devcon for Bankless, the conference was a ton of fun and an amazing cultural experience in Bogota, Colombia. We’re speaking with Justin Drake about his talk at Devcon—the only conversation about ETH the asset. What are the next steps for Ether? The value of the asset correlates directly to the health of the network, and maybe it’s time to start talking about ETH more as a community. ------ 📣 Push | Try the Communication Protocol of Web3 https://bankless.cc/Push ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 💠 NEXO | CRYPTO FINANCIAL HUB https://bankless.cc/Nexo 🔐 LEDGER | NANO HARDWARE WALLETS https://bankless.cc/Ledger ⚡️FUEL | THE MODULAR EXECUTION LAYER https://bankless.cc/Fuelpod ------ Timestamps: 0:00 Intro 3:00 Justin Drake en Español 6:30 The ETH Roadmap 9:30 Ultrasound Money 12:40 Deflationary Monetary Policy 17:55 Changing the Narrative 19:00 zkEVM 22:30 Justin in Colombia ------ Resources: Justin Drake https://twitter.com/drakefjustin ----- 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://www.bankless.com/disclosures

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

• 0:03David Hoffman?

  Welcome back Bankless Nation to DevCon 6, the DevCon 6 experience. In this interview, we're talking with Justin Drake. Justin Drake gave the only talk at ETH Denver about ultrasound money, about ETH the asset. There was one talk about ETH the asset, which is like, you know, technically an infinity number, percentage more talks than all previous DevCons about Ether the asset. So we're trending in a good direction. A lot has happened about ETH the asset since the last DevCon. And of course, Justin Drake has been the pioneer of the ETH ultrasound money narrative. I talked to him about the ultrasound.money website and effort that he's involved with. And overall, what are the next steps for Ether as an asset? What does 4844 do to Ether? How will Ether change coming into the future?

• 0:47David Hoffman?

  And just a story of Ether and what he wants to do moving into the future. So I hope you enjoy this conversation with Justin Drake, Mr. Ultrasound Money himself, right after we talk to some of these fantastic sponsors that make the show possible. TrueFi is leading DeFi into the future of on-chain, uncollateralized loans, opening up DeFi to the $8 trillion global credit market. Whether you want higher yields on your lending, or you're a fund manager who just wants access to global liquidity and the cost savings of DeFi, TrueFi is here for you. But if you're going to use TrueFi, use it through the Brave browser, the user-first browser for the Web3 age. The Brave browser keeps your digital footprint small, keeping you in the driver's seat while also being a powerful battle station for Web3, letting you access your crypto through its native wallet, view your NFTs, and keep up to date with your Web3 communities.

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• 2:16David Hoffman?

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• 3:01David Hoffman?

  And we are back at DevCon 6 in Bogota, this time with Justin Drake, who I just learned gave a talk about ultrasound money in Spanish. How'd that go, Justin?

• 3:11Speaker 01

  It went OK. People said that I was very, very concentrated. And indeed, I was, like, a whole 25 minutes in Spanish. My Spanish is understandable but full of mistakes, so, yeah. I hope they understood me, but I think it was appreciated that I made the effort to speak in Spanish.

• 3:27David Hoffman?

  Yeah, I would try to speak in Spanish, but it wouldn't go very far. And so, maybe next DevCon, next DevCon that's somewhere in South America. Justin, you had the only talk that was about Ether the asset. Was it about ultrasound money?

• 3:43Speaker 01

  It was, yes. So basically, the talk in Spanish was the prep talk, and then I did it in English two days later. Yeah, the only talk about Ether the asset, despite, in my opinion, Ether the asset being critical towards the ultimate success of Ethereum.

• 3:58David Hoffman?

  But was there any talk about Ether the asset last DevCon? Because I feel like maybe it was zero last time, and it's one this time.

• 4:03Speaker 01

  Oh, yeah. So it's infinitely better, yeah. Zero to one, and then the next step is one to 10 or something.

• 4:09David Hoffman?

  So, walking around this DevCon, talking to people, how are people receiving the ultrasound money meme? Like, how do people think about it? How are people talking to you about it?

• 4:18Speaker 01

  Very well, you know, I walk through DEFCON and like people say, "Good talk, good talk." So I think it's appreciated. Another really cool thing is that I've had, you know, thinkers and researchers and analysts and economists come to me and say, "Hey, I've been thinking about this as well, and I have some ideas and I have feedback on the content you've delivered." And so now I think we have this kind of this small group of maybe 10 to 12 people who are like seriously interested in analyzing this narrative and understanding its fundamentals.

• 4:47David Hoffman?

  And why do you think this narrative is capturing the brains of these people?

• 4:53Speaker 01

  Because everyone wants to see Ethereum succeed. And in order to get there, we need to really, you know, make Ether succeed as well because it's it's kind of somewhat counterintuitive, but as the price of Ether grows, that reflexively kind of increases the utility of Ethereum itself. And that's for two reasons. Reason number one is economic security. The more valuable Ether is, the more secure Ethereum is, and so therefore, app developers who want to see the applications live decades and centuries are more incentivized to go build on this protocol. That's basically the protocol sync pieces. Like, as the price of Ether goes up, Ethereum becomes heavier and heavier and heavier.

• 5:35Speaker 01

  The other aspect is that we want to be building decentralized finance, and for that we need so-called economic bandwidth. We need this asset that can be used as collateral. Now, of course, we can use real-world assets, but that comes with all sorts of complications. In terms of counterparty risks, in terms of, you know, contract risk, oracle risk, whatever it is. But there is this one pristine asset, Ether, which, if we had it in very large quantities, would make Ethereum much, much more useful and valuable.

• 6:06David Hoffman?

  And we are now officially in the era of ultrasound money. While the meme started sometime in 2021, we actually haven't gotten to Ether becoming true ultrasound money until we merged six weeks ago or so. And now Ether is ultrasound. And we've seen this insane amount of supply reduction. I think if we were still in proof of work, we would have had Three hundred and fifty thousand Ether issued, but instead we just have seven thousand Ether issue instead. So we are now in the era of ultrasound money, but I don't think that story ends here. There are other things that might influence or change the trajectory of the ultrasound money meme. There's four eight four four, which will impact the economics of Ether. What's left in the roadmap for Ether, the asset?

• 6:51Speaker 01

  Right, I think a big one is going to be scalability. And, you know, we have this surge coming, this big wave of scalability. In my opinion, we're going to, over the next decade, go from ten transactions a second to ten million transactions per second. So that's going to do a couple of things, like one is that it's going to dramatically decrease the per transaction fee. That's pretty obvious, but there's this other maybe less obvious thing is that it's just going to create much more value and there's this notion of, you know, induced demand. As you improve things, Ethereum will be providing one more utility and therefore in aggregate, when you take all the transaction fees together, you know, if the historical trend continues,

• 7:36Speaker 01

  we'll be in a position where Ethereum is able to capture a lot of that value and therefore become more useful for that developers because that means more economic security and more connect bandwidth.

• 7:47David Hoffman?

  And so the general idea is that we are going to, scalability is a huge theme here. And I think now that we're done with proof of stake in EIP one five five nine, it's scalability that is where we are focusing next. And some people are saying like, oh, EIP one four eight four four is going to reduce a lot of the ETH burn. And perhaps that's probably true, at least in the short term, until that induced demand actually starts to manifest and we find new use cases that are sub one cent transaction fees and people start transacting ten thousand times a day. Is that kind of the idea?

• 8:18Speaker 01

  Yeah, absolutely. I mean, one thing to mention is that when EIP four eight four four comes in, it's not like the fee market will instantly crash. And the reason is that there needs to be adoption. So just like rollups themselves needs to be adopted and, you know, this is still like an ongoing story and it's, you know, relatively slow. You know, rollups came into production, let's say a year ago, and still right now we don't have much adoption. It will be an additional kind of friction to move away from so-called cold data, which is the resource which is being consumed today to EIP four eight four four because of various technical reasons. What will happen, though, is that once we move from proto dank sharding to full dank

• 8:59Speaker 01

  sharding, that is basically just increasing the amount of so-called blob data. And here, it will, it might, it will actually lead to like an instant crash in the, in the market. And then here, we'll have to wait for kind of a ramp up after that. But, you know, these are transitory things that will happen in the next few years. I'm, I like to think about the, the end games, I guess.

• 9:22David Hoffman?

  And Justin, there's, there's two ways to talk about ultrasound money. There's one at the technical layer, which is what we're doing, EIP 1559, proof of stake 4844. That's like the technical ways that Ether changes as an asset. But there's also ultrasound money, the meme. How is the meme going? So technical, I think we're doing pretty well. We're shipping pretty hard. How is the meme doing? How would you rate, rate the, the strength of the proliferation of the ultrasound money meme?

• 9:49Speaker 01

  Right. So there's different metrics that we can use to measure the proliferation of the meme. We can look at, for example, the number of Twitter accounts that have the bad signal propagating the meme. And there's actually something like 8,000 accounts now.

• 10:02David Hoffman?

  Wow.

• 10:04Speaker 01

  That have the bad signal. A bunch of them are spam, something like, like two to three, two, 3,000. But there's still like this core group of 5,000 that are not spam. There's also kind of metrics from the website, right? So I'm helping out with the website and so I get access to.

• 10:22David Hoffman?

  The ultrasound dot money website.

• 10:23Speaker 01

  That's correct, yes. And before the merge, we were doing about 3,000 unique visitors a day. After the merge, we were doing something like 10,000 unique visitors per day. And now we're doing something like 20 to 30,000.

• 10:36David Hoffman?

  Wow.

• 10:37Speaker 01

  Because people want to see the Ether supply go down and this is exciting. And also, there's going to be so much more content on this website coming up. And by the way, a small plug, if you're a front-end developer, there is a position available.

• 10:52David Hoffman?

  Amazing, yeah. And that website is just becoming more and more and more useful. It's a great service just to understand the metrics around Ether, the asset. And that's always one of the things I've really enjoyed about Ether and Ethereum, and especially the monetary policy of Ether, is that there's more numbers to look at. Like Bitcoin is. 21 million, that's the only number. Maybe we talk about the difficulty adjustment. That's the only two numbers for Bitcoin. For Ether, there is the burn per block. There's the burn rate, the issuance rate. There's so many more metrics to look at. And Ultrasound Money is doing a great job of just displaying all of this. How much work do you think is left to do on this Ultrasound Money website? Where is it now versus where you want it to be in the future?

• 11:33Speaker 01

  Right, so let me tell you about the vision for this website. The idea is to be like the one-stop-shop for Ether, the asset. And really try and digest everything for mainstream audience. In terms of what's next to be built, there's a lot around the whole search story. So there's, for example, looking at the burn per rollup, but also diving into each rollup and understanding where the burn comes from. But also looking at things like total value secured. Because Ether, the asset, can be programmed to be like this very hot money in the context of transfers and transactions. But it can also be used as cold money collateral.

• 12:14Speaker 01

  And I think total value secured is something that's not really appreciated today because it's only 5 million, 120 million, so it's pretty negligible. But I think what will happen over the next 10 years, that 80% of all ETH will be used as collateral, either in staking or in DeFi. And that's going to have huge consequences in terms of velocity of money and things like monetary premium.

• 12:38David Hoffman?

  So how much more do you think there is to unearth about Ether, the asset? Do we kind of know most that we will know about Ether, the asset? Or is there still a lot of story to be told here?

• 12:50Speaker 01

  I think two years ago, I knew almost nothing. And I think this is typical for technical people, like we're technology, technology, technology.

• 13:00Speaker 01

  I've learned so much over the last few years and I still keep on on on learning. And also, like, as I, as I mentioned, there's people who approach me and there's some people who just disagree with me. And so that's going to lead to debates and refinements and and new hypotheses put forward. But one of the the fun things is that, you know, this is, this is low hanging fruit. We're doing something that's never been done in the history of money. It's extremely exciting. It has a lot of potential. And here we are at the frontier discovering it.

• 13:29David Hoffman?

  I was hoping you were gonna say that word, the frontier. We're on the frontier. Oh, my gosh, there's so much, so much left in this story to be told. One of the critiques about Ether, the ultrasound money narrative, is it's deflationary. And deflation is bad. It's gonna spiral out of control. It's gonna make Ethereum too expensive to use, blah, blah, blah, blah, blah. Is this a misconception? Is this critique valid? Or how do you think about the deflation critique of Ether?

• 13:53Speaker 01

  Right. So I think deflation is bad is a valid criticism for some types of monies, but not for Ether, the asset specifically. And the reason is that I distinguish two types of assets. I distinguish debt money and collateral money. Now, why is it good for debt money to be inflationary?

• 14:11David Hoffman?

  Can we define debt money real quick?

• 14:13Speaker 01

  Yeah, the idea of debt money is that you put forward a collateral and you take out debt from this collateral. So the the simplest example is maybe a house. You have a house, you take a mortgage, you take out debt. And it's good that this debt is denominated in US dollars, for example. And the rea- one of the reasons is that it's inflationary and so over time it becomes easier and easier to pay the debt. And so you're actually unlikely to to default on your debt. And, you know, the reason why the house is kind of a good collateral is because house prices are up only. So that's the reason why banks are just so comfortable at giving you a a a mortgage. Because houses are optimized as collateral and then US dollars are optimized as debt. And it's the same thing with Ether.

• 14:55Speaker 01

  You have, Ethers are optimized as a collateral asset against which you're gonna take debt, which is going to be a stablecoin like DAI or RAI or LUSD.

• 15:05Speaker 01

  And in my opinion, And here is, because you're on the opposite side of the coin, you actually want your debt, your collateral asset to be deflationary. You want it to grow in value over time because it means that you're less likely to get liquidated and that will lead to these like large systemic risks where you know potentially like you have mass defaults and things collapse.

• 15:25David Hoffman?

  Okay, so there's two types of money. Are there, and that's the only two types of money? There's collateral money and debt money? Is that a, is that a fair take?

• 15:32Speaker 01

  Yeah, that's one way to classify the two sides of the coin.

• 15:34David Hoffman?

  Right, yeah. And so you're saying that you want the collateral money to go up in price and you want the debt money to go down in price and that probably produces a more stable financial system over the long term. You probably don't want it to be too inflationary or too deflationary. You want it to not be too volatile, but where the collateral grows up in value and the debt goes down in value over the long term, you're saying is, is a good financial system.

• 15:56Speaker 01

  Yeah, for robustness.

• 15:57David Hoffman?

  For robustness, yeah. And I always thought it was another take about the deflationary aspect of Ether is that, well, there's so many other currencies on Ethereum that you get to kind of pick and choose your monetary policy. And I, and I think what you were saying is actually a more evolved version of this narrative, but my, my idea was that there's the Rye monetary policy, the Dye monetary policy, the Ether monetary policy. And since all of these things have tons of liquidity with each other on Ethereum, it doesn't matter if Ether is super deflationary because you can, you have like alternatives, right? And it's not like it, while it is setting like the core foundation of all of Ethereum, it's not like, uh, you know, the Dye economy is actually somewhat distinct from the Ether economy.

• 16:38Speaker 01

  Yeah, exactly. Like if you, if your use case is like hot money, meaning high velocity money, then you can move in and out really quickly of various, of various currencies. But in terms of, um, you know, use cases of money as currency, by the way, currency comes from a current, it means money that flows. Um, I think ETH is going to play a large role for a couple of reasons. Like one is if you think of DeFi money blocks, right? They're going to compose through this money API. And if they, if these money blocks want to live for decades and centuries, they're going to want to choose like the most pristine APIs and most robust ones. And so I think ETH is going to play a large role. And we're already seeing that, for example, on Uniswap. Ninety-five percent of the non-like-to-like trading volume is ETH.

• 17:24Speaker 01

  And also a very similar story on OpenSea, like a lot of the NFT trading is an ETH. But even for those use cases that don't want ETH because it's too volatile, I think what we want as a community is to use stabilized ETH. So we could use a stablecoin like USDC or USDT. But that comes with all sorts of problems. And my hope at least is that these custodial-based centralized stablecoins are a temporary thing. And in ten years' time, they'll be a thing of the past.

• 17:57David Hoffman?

  So historically, in the developer circles of Ethereum, it's always been a focus on Ethereum, the network, not Ether, the money. And you've been the developer leading the charge, like, hey, no, also Ether too. How has that been resonating with the other developers in the Ethereum circles?

• 18:14Speaker 01

  Yeah, like there's been this gradual warming up. You know, I used to be the exception, but now like more and more people appreciate it. And I think it's a journey again that technical people kind of go through. And I think, you know, as a researcher, I spend a lot of time really deep in the technology. But now that I have a bit more free time because the research problems have been solved, I can kind of go at different layers of the stack. And I think this might happen with other people as well. And I think there's also kind of this aspect of taboo associated with it, which I think is slowly dissolving. You know, partly because maybe of regulation as well.

• 18:59Speaker 01

  Like there was uncertainty around whether Ether is a security. I think at this point in time, you know, I don't want to put, I'm not a lawyer, but you know, I think we can move on and start talking about it more freely.

• 19:10David Hoffman?

  Certainly. So Justin, you are the Ultrasound Money guy, the guy that thinks a lot about Ether and monetary policy. But what else about Ethereum outside of Ether has captured your attention, especially some of the conversations here at DevCon? Outside of Ether, what is in your brain?

• 19:25Speaker 01

  Yeah, so I'm like really fascinated by ZK EVMs. Like there's the nerd dream because it encompasses so much technology in like this one black box. And you know, I've just been amazed at how much progress there's been. There's still a lot of work to do and you know, often like the ZK rollups will kind of hype themselves a little bit too much. You know, one of the things I'm worried for example is bugs, right? We have these extremely complicated circuits and one critical bug is enough to break the ZK rollup. And we're talking potentially a billion dollar plus hack. And now we've seen empirically that we can't even get bridges correctly. Like every other week, there's a hundred million dollar bridge hack.

• 20:08Speaker 01

  And so I'm, I am worried about the security of ZK rollups. And you know, this is an opportunity, right? For people who are security experts, who are formal verification experts, what are fuzzes, whatever it is. Please join us. We need you to solve this problem.

• 20:25David Hoffman?

  How do we solve this problem or is that just a research task?

• 20:30Speaker 01

  I think it's more of an engineering task. Like you want to build systems that are modular so that we can kind of analyze like chunk by chunk. And you know, if this bit is secure and this bit is secure, then you know, we want these composability guarantees that the whole thing is also secure. And one of the good things about breaking it down in chunks is that, you know, we can put out like the best tools that we have. So you know, we have just audit using like, using your eyes. We have fuzzing, which is this idea like throwing all sorts of random junk at it and seeing where it breaks. And then we have like the extreme end of the spectrum where, which is called formal verification, where you basically write a mathematical proof written by a computer

• 21:14Speaker 01

  that this thing is exactly equivalent to the spec that it's meant to to match.

• 21:20David Hoffman?

  Amazing. Yeah, the excitement around the ZK EVMs are definitely palpable, especially when like at ECC, the theme was the ZK EVMs are here. Now here at DevCon, all the test nets are coming online and ZK Sync has their layer threes. Are you optimistic that we'll be able to smoothly solve the bridge issue and the bug issue? Perhaps faster than what we've seen in 2021?

• 21:42Speaker 01

  Right, so.

• 21:44Speaker 01

  One of the things that I think will happen is that these rollups won't go like fully decentralized and permissionless from day one. There will be this gradual ramp up. And one of the things that I think is a good idea is basically this maybe one hour like safety buffer. So you know, one of the big selling points of ZK rollups is that you get this instant finality. But I think it's actually okay that in the early days, finality takes a whole hour. And the idea of delaying by an hour is that if an attacker basically forges a proof for an invalid root, which kind of empties the whole thing, we have this one hour to kind of press the big red pause button and fix everything.

• 22:25David Hoffman?

  Okay, yeah, that, yeah, I can definitely see that. And with ZK rollups, of course, they're all super hyped, but it's also some of the most new technology that we have in this space, which is always a little bit scary. Justin, do you have any plans for Bogota for the rest of your time here?

• 22:43Speaker 01

  So there's like a couple kind of offsites, one for the holder of the E F, one for the research team. Looking forward to getting out. I've been, you know, primarily like a hotel in here, and they're five minutes from each other. Spent so much time meeting people. The energy is like so high. And, you know, it's been very productive.

• 23:03David Hoffman?

  Do conferences drain you?

• 23:07Speaker 01

  They energize me and they drain me at the same time. Like it's like adrenaline and then, you know, I'm happy to go back home so that I can kind of see my family and rest.

• 23:15David Hoffman?

  Well, Justin, it's been fantastic hanging out with you here in Bogota. And thank you for your time.

• 23:18Speaker 01

  Yeah, thank you.

• 23:19David Hoffman?

  Cheers.

• 23:20Speaker 01

  Cheers.