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Vitalik Buterin on The Tim Ferris Show (Featuring Naval Ravikant)

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Key Takeaways

  • “Ethereum is a general-purpose blockchain” – Vitalik Buterin
    • Bitcoin is a spreadsheet, Ethereum is a spreadsheet with Macros
    • Ethereum’s defining feature is unstoppable applications
  • Smart contracts are at the core of the ETH blockchain. Ethereum applications allow composability. That is, they can be built on top of each other like Lego blocks.
    • Applications include decentralized domain name system, autonomous organizations, prediction, and financial markets, and non-fungible tokens
  • We are used to closed source companies capturing the value. Now, open-source protocols capture value. “This is the next phase of the internet after mobile” – Naval Ravikant
    • Forking allows communities to exert collective agency and protect themselves from being exploited. Similarly, communities support valuable contributors even if someone copycats their work
  • Layer 1 scaling for Ethereum will include transition to Proof of Stake and Sharding, whereas layer 2 will introduce Roll-ups.
    • Combined, Ethereum will support north of 100K transactions/ second
  • Unlike Bitcoin, the Ethereum ecosystem hosts numerous other tokens. New tokens and airdrops create new opportunities and help reduce wealth disparity
  • Cryptocurrencies are inherently designed to be sovereign resistant, stateless. Banning backfires and just removes innovation from the banning country
    • Crypto is “the native money of the internet”, and it will eventually turning off crypto will mean turning off the internet
  • Top ways of getting into Ethereum without buying the token include building applications and participating in Meet-ups
  • Vitalik learned Chinese by using Pimsleur, Duolingo, and watching TV shows with English subtitles

Intro

  • Vitalik Buterin (@VitalikButerin) is the co-founder of Ethereum, the second-largest crypto platform behind Bitcoin
    • Check out his website and read the Podcast Notes from Bankless Nation Podcast where he talks about Eth 2.0
  • Hosts: Tim Ferris & Naval Ravikant
  • A primer: read the Podcast Notes from Tim Ferris #244: Quiet Master of Cryptocurrency

What Is Ethereum?

  • “Ethereum is a general-purpose blockchain” – Vitalik Buterin
    • A blockchain is a decentralized network of computers that collectively maintain a ledger and prevents tampering outside the rules
    • Ethereum supports programming any system with various rules built on top. Nodes execute the code and the network collaboratively enforces the rules of your application
      • In contrast, early days of crypto had single-purpose blockchains, or protocols supporting multiple specific applications with no expansion possibility (e.g. Namecoin)
  • “If Bitcoin is a shared ledger then Ethereum is a shared computer for the entire world to run its most important applications” – Naval Ravikant
    • Bitcoin is akin to a spreadsheet where a person controls specific cells, whereas Ethereum is a spreadsheet with macros where cells interact
  • Ethereum’s defining feature is unstoppable applications that run doesn’t trust or rely on any single entity to operate
    • No one, including the creator, can stop an application running on Ethereum

Examples of Ethereum Applications

  • Smart contracts are at the core of ETH blockchain. Think of them as vending machines, they take payment to perform a function
    • Additionally, Ethereum applications allow composability. That is, they can be built on top of each other like Lego blocks. Once a piece is built, it’s available to everybody and pieces stack on each other
  • ETH, the currency, is the first application of Ethereum
  • Ethereum Name System (ENS) is a decentralized domain name system (DNS). Moreover, ENS allows for censorship resistant, decentralized messaging platforms, such as Status
  • Decentralized Autonomous Organizations (DAOs) have their rules encoded in smart contracts, with programs executing them to control the organization’s assets
    • Maker DAO is one example, it maintains the DAI coin with stable dollar parity
  • Decentralized Finance (DeFi) enables applications like prediction, trading, and financial markets to run on smart contracts, with no middle men (e.g. lawyers and bankers)
    • Thanks to Ethereum composability, DeFi products are advanced and can interconnect and collaborate
      • As opposed to traditional finance, where, for instance, Robinhood trading and Wisdom Tree mutual fund cant combine with each other
  • Non-Fungible Tokens (NFTs) represent something that is not a financial asset (e.g. video game asset, digital art, etc.). They can also be re-used across different games, worlds, etc.
    • “You own it in one place and you own it everywhere, which is a very powerful concept”
      • “Digital scarcity was born with Bitcoin but now extending into things that are not fungible, not exchangeable with each other” – Naval Ravikant

Intellectual Property on Ethereum

  • Blockchains combine individualism with consensus and cooperation to build a giant public good
    • We are used to closed source companies capturing the value. Now, open-source protocols capture value
    • “This is the next phase of the internet after mobile” – Naval Ravikant
  • Forking allows communities to exert collective agency and protect themselves from being exploited
    • For instance, when Justin Sun overtook the Steem platform, users collectively forked of the balances and rules of Steem to a new network called HIVE, and Justin was left holding an empty empire
    • In the same manner, communities support valuable contributors even if someone copycats their work
  • Figuring out how to distribute the spoils is key in building and maintaining crypto communities. Case study:
    • UniSwap is a decentralized finance protocol to exchange Cryptocurrencies on Ethereum. SushiSwap cloned the protocol and attempted to migrate the community. In response, UniSwap issued and airdropped its own token
    • Contrast this with the traditional world, where you don’t see Facebook airdropping its shares or Twitter sharing its revenue with its users

Scaling Ethereum

  • “The big debate now about Ethereum has shifted from ‘Will it work?’ to ‘Will it scale?’” – Naval Ravikant
    • Ethereum layer 1 scaling involves modifications to the blockchain itself, mainly through Eth 2.0 and Sharding
      • That said, contentious hard forks are unlikely. “I don’t really think there is a deep schism of ideology within Ethereum in the way that there was in Bitcoin” – Vitalik Buterin
  • Eth 2.0 will transition the network from Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS)
    • Eth 2.0 chain with PoS is already running in parallel to PoW chain, with the chain merge being a priority for developers in order to enable Roll-ups
  • Sharding allows nodes to safely download and verify a small portion of the data, rather than downloading the entire block
    • It combines the advantages of a bitcoin-style blockchain and bit-torrent
    • Sharding is quadratic. That is, if the efficiency increases by a factor of 2, then Capacity increases by a factor of 4
  • Overall, layer 1 scaling can achieve 100x scaling improvement

Layer 2 Scaling

  • Layer 2 scaling builds protocols on top of the base blockchain, the most famous of which is payment channels
    • Payment channels allow multiple parties to sign numerous transactions in a computer-controlled channel, and to only settle on the blockchain
      • As a result, hundreds of transactions can be represented as 2 transactions on the blockchain
  • Roll-ups support applications on layer 2 by running programs off-chain and submitting proofs of transaction validity
    • Optimistic and Zero-knowledge (zk) proofs give another 100x speed up
      • Zk proofs allow proving an outcome is true without revealing the content
    • “Roll-ups are coming very soon” – Vitalik Buterin
  • Layer 1 and 2 solutions combined can achieve 100K transactions per second, with Vitalik expecting even more
    • For context, there are about 100K tweets per second during Twitter peak times

PoS vs PoW

  • Decentralized networks require a consensus mechanism that can protect against a Sybil attack (where one attacker pretends to have many different accounts and outvotes everyone else)
    • To this end, decentralized networks have voting power proportional to the contribution of economic resources
  • Proof of Work depends on hash computing power, with miners competing to find the hash solution in order to generate a block and acquire newly minted currency units
  • In Proof of Stake systems, the right to generate a block is proportional to how many coins you are staking (locking up), with mechanisms protecting against a Sybil attack
    • This is more energy-efficient because it doesn’t require continuously running a computer
    • POS supporters believe it can survive with much lower rewards than POW can – Vitalik post
    • Large-scale miners can be located and shutdown, whereas validators require just an internet connection. Thus, POS can also be more resistant to state attacks.

Thoughts on the Crypto Ecosystem

  • Only bitcoins exist in the Bitcoin ecosystem, whereas the Ethereum ecosystem hosts numerous other tokens
    • Once coin pre-mines became acceptable, the move from mining towards creating and forking became inevitable
    • New tokens and airdrops create new opportunities and help reduce wealth disparity
  • Whereas Bitcoin is digital gold and favors a rising price, this isn’t necessarily the case with Ethereum
    • EIP-1599 results in a reduction of fees and minted coins, in such a way that more eth is destroyed than created when the network is in high demand
      • In a sense, the value of bitcoin is in the currency with the blockchain as a side feature. While the value in Ethereum is the blockchain being used and Eth is the byproduct
  • “I think the Bitcoin ecosystem does have its own ticking time bombs too, Tether is one example” – Vitalik Buterin
    • That said, “Not your keys, not your coins” – Andreas Antonopoulos and “Trusted third parties are security holes” – Nick Szabo
  • Cryptocurrencies are inherently designed to be sovereign resistant, stateless. Banning backfires and just removes innovation from the banning country
    • Crypto is “the native money of the internet”, and it will eventually turning off crypto will mean turning off the internet
    • Keep in mind, regulators see the positive value in cryptocurrencies, evident in their limited crackdown so far
  • “Taxes have to be collected now whereas printing can kick the can down the road for the next person to solve” – Naval Ravikant
    • Cryptocurrencies are a transparent ecosystem, with implications on how governments raise funds and hide inflation

Miscellaneous Notes 

  • Top ways of getting into Ethereum without buying the token include building applications and participating in Meet-ups
    • Next to explore in the Ethereum rabbit hole: zk-SNARKS
  • Public goods where costs are concentrated but benefits are distributed tend to be undersupplied
  • “I think there is a very significant chance that where we stand today is for biotech where computers were in 1950” – Vitalik Buterin
    • Moreover, Coronavirus has accelerated the pace of innovation, especially against bio-conservatism and government bureaucracy
    • “Healthcare is the ultimate inelastic good. On your deathbed, you will spend any amount of money to live an hour longer” – Naval Ravikant
  • Vitalik learned Chinese by using Pimsleur, Duolingo, and watching TV shows with English subtitles
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Notes By Mostafa Khaled

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