Vitalik Buterin on better ways to fund public goods, the blockchain’s failures so far, & how it could yet change the world

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Bees have evolved very clever decentralised mechanisms for aggregating knowledge and making collective decisions, for example when choosing where to build a nest . Vitalik Buterin is trying to use new technologies to enable intelligent coordination between people on a larger scale than has historically been possible.
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We’re talking about a general purpose infrastructure for funding public goods in the same way that money is a general purpose infrastructure for funding private goods. There’s definitely a lot of challenges. But at the same time, but if we can make that work… it’s huge.
Vitalik Buterin
Historically, progress in the field of cryptography has had major consequences . It has changed the course of major wars, made it possible to do business on the internet, and enabled private communication between both law-abiding citizens and dangerous criminals. Could it have similarly significant consequences in future?
Today’s guest — Vitalik Buterin — is world-famous as the lead developer of Ethereum, a successor to the cryptographic-currency Bitcoin, which added the capacity for smart contracts and decentralised organisations. Buterin first proposed Ethereum at the age of 20, and by the age of 23 its success had likely made him a billionaire.
At the same time, far from indulging hype about these so-called ‘blockchain’ technologies, he has been candid about the limited good accomplished by Bitcoin and other currencies developed using cryptographic tools — and the breakthroughs that will be needed before they can have a meaningful social impact. In his own words, “blockchains as they currently exist are in many ways a joke, right?”
But Buterin is not just a realist. He’s also an idealist, who has been helping to advance big ideas for new social institutions that might help people better coordinate to pursue their shared goals.
By combining theories in economics and mechanism design with advances in cryptography, he has been pioneering the new interdiscriplinary field of ‘cryptoeconomics’. Economist Tyler Cowen has observed that , “at 25, Vitalik appears to repeatedly rediscover important economics results from famous papers — without knowing about the papers at all.”
Though its applications have faced major social and technical problems, Ethereum has been used to crowdsource investment for projects and enforce contracts without the need for a central authority. But the proposals for new ways of coordinating people are far more ambitious than that.
For instance, along with previous guest Glen Weyl , Vitalik has helped develop a model for so-called ‘quadratic funding’ , which in principle could transform the provision of ‘public goods’. That is, goods that people benefit from whether they help pay for them or not.
Examples of goods that are fully or partially public goods include sound decision-making in government, international peace, scientific advances, disease control, the existence of smart journalism, preventing climate change, deflecting asteroids headed to Earth, and the elimination of suffering. Their underprovision in part reflects the difficulty of getting people to pay for anything when they can instead free-ride on the efforts of others. Anything that could reduce this failure of coordination might transform the world.
The innovative leap of the ‘quadratic funding’ formula is that individuals can in principle be given the incentive to voluntarily contribute amounts that together signal to a government how much society as a whole values a public good, how much should be spent on it, and where that funding should be directed.
But these and other related proposals face major hurdles. They’re vulnerable to collusion, might be used to fund scams, and remain untested at a small scale. Not to mention that anything with a square root sign in it is going to struggle to achieve widespread societal legitimacy. Is the prize large enough to justify efforts to overcome these challenges?
In today’s extensive three-hour interview, Buterin and I cover:
What the blockchain has accomplished so far, and what it might achieve in the next decade;
Why many social problems can be viewed as a coordination failure to provide a public good;
Whether any of the ideas for decentralised social systems emerging from the blockchain community could really work;
His view of ‘effective altruism’ and ‘long-termism’;
The difficulty of establishing true identities and preventing collusion, and why this is an important enabling technology;
Why he is optimistic about ‘quadratic funding’, but pessimistic about replacing existing voting with ‘quadratic voting’ ;
When it’s good and bad for private entities to censor online speech;
Why humanity might have to abandon living in cities;
And much more.
Get this episode by subscribing to our podcast on the world’s most pressing problems and how to solve them: type 80,000 Hours into your podcasting app. Or read the transcript below.
The 80,000 Hours Podcast is produced by Keiran Harris.
Highlights
Blockchains beyond cryptocurrency are themselves a big sector that I’m very excited about. But being realistic, there has been very little actual deployment of blockchain applications outside of cryptocurrency so far. And I do think that’s going to change and it’s starting to change. For example, in Singapore there is this thing called OpenCerts, which is basically using blockchains to verify that certificates like university degrees haven’t been revoked yet. And they’ve managed to get partnerships with a lot of universities and different institutional entities. So there’s things like that. But now and in the past, cryptocurrency has definitely had the biggest impact.
And it’s definitely had both good and bad consequences. On the bad side, there’s obviously hacks and thefts and ransomware and all the things that people already talk about. And on the good side, I think people do underestimate the extent to which it’s actually helped people by making it easier to move money around.
I’ve been an evangelist for this thing called social key recovery, which basically says that you have an account and you have one master key that can do things, but then you also specify some set of other keys. And these other keys would generally just be like your friends. And the idea is that any majority of those keys could come together and switch your master key to something else. So if you lose your master key, they could recover it. In case your master key gets stolen, then the idea is that you would store most of your money in a savings wallet that would enforce like a one day delay before you can take money out, and so you’d get your friends together within the day so that they can switch the key and cancel it. And it’s a security model that exists in the real world already. For example, WeChat uses it for account recovery. So I definitely want to see more experimentation with social key recovery.
A lot of problems become easier when you stop living in cities. Like in the nuclear case, I did the math once and if you spread out everyone equally across the entire earth’s surface then 7.6 billion people divided by 150 million square kilometers of land mass gives you 51 people per square kilometer and at that rate nuclear bombs become a less cost-efficient way of killing people than hiring samurais to run around with swords.
Let’s suppose that there is some public good that exists and people can start contributing to building now, but it’s a thing that’s not really recognized well as a public good today, but you think it’s going to be something that’s universally agreed to be a really important public good 20 years or 50 years from now. Right. So like something that’s at the end stages today might be ending slavery. Something which is in the earlier stages today might be contributing to carbon emissions reduction and or even just AI research itself…
The general pattern here is that you can create tokens that basically correspond to proof that you actually participated in this public good project today. So carbon credits would be one example here and you can start markets for these things today and you can make these markets work like having them be really efficient, have them be international, and anyone in the world can participate in all these things. And then you assume that the world is going to be more well coordinated 50 years from now …. governments of the future may just end up buying up these tokens to thank people who helped in the past and to maintain the commitment that these kinds of tokens are going to be valuable for things that will matter in the future.
So the basic argument is that I was arguing against people that say that free speech is purely a legal protection that applies only to governments and that private entities censoring whatever they want is A-OK and it’s totally just their policy and we should be neutral about it. And the main argument that I have there is basically that first of all, there’s a reason why we have free speech norms and the reason why we have these free speech norms most fundamentally, is that if you want to create an environment where good ideas win, then you want to have an environment where you don’t have these weird side incentives that really heavily penalize you for publishing certain kinds of ideas where those incentives have nothing to do with the idea’s underlying goodness.
Government censoring is obviously one example of that, but we’re increasingly living in a world where these private entities also have a huge amount of power over basically how we talk to each other and how each story gets presented. And if a private entity ends up censoring that, then it in many cases ends up having a lot of the same kinds of costs that government censorship does. And so we should be upset at them for exactly the same kinds of reasons.
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RadicalxChange project
Transcript
Robert Wiblin: Hi listeners, this is the 80,000 Hours Podcast, where each week we have an unusually in-depth conversation about one of the world’s most pressing problems and how you can use your career to solve it. I’m Rob Wiblin, Director of Research at 80,000 Hours.
People who follow me on social media will know that I’ve been vocally skeptical about the value of bitcoin and the blockchain more generally. But it would be irrational to think I know where blockchain technology might go in coming decades — many inventions take a while to find truly useful applications.
And I’ve been very impressed with a handful of people working to develop what blockchains are capable of, one of whom is Vitalik Buterin.
I was first struck by his candidness and insightfulness when I heard him on the show Conversations with Tyler last year. Vitalik is something of a child prodigy, who’s been attracting a lot of attention through his research and accomplishments, including creating the cryptocurrency Ethereum back in 2015 which made him incredibly rich.
He’s been making impressive progress in both engineering blockchain systems that might be turned to useful purposes, and as a theorist developing the so-called cryptoeconomics that explains how these systems can be robust and why they might solve problems that other technologies can’t.
This conversation is quite related to my episode with economist Glen Weyl from earlier this year – episode 52, Prof Glen Weyl on uprooting capitalism and democracy for a just society.
Vitalik has actually co-authored a few papers with Glen, and they’re collaborators on the RadicalxChange project, though they have plenty of disagreements as well. So if you’ve already listened to that episode, or want to go back to it first, that’s great — but it shouldn’t be necessary to make sense of what we’re talking about today.
To most people it’s a bit confusing why I think this topic of mechanisms for social coordination is of such great importance. This interview also get pretty technical pretty fast, and don’t stop to explain what things like blockchains, or quadratic voting, or stablecoins actually are. So I’m going to start here by talking for a while until I think we’ve set the scene satisfactorily.
If you’d rather skip that and go straight to the interview with Vitalik, just jump forward to minute 23.
So for those who don’t know, the blockchain is a protocol developed about ten years ago, which allows the maintenance of a decentralised ledger, or a set of accounts that define who has how much money on the network. Alternatively you can transfer tokens that don’t have to look like money per se — for example a token that indicates that you own something in the real world.
The first example of a blockchain was called Bitcoin. In brief, many computers around the world run the bitcoin software.
These computers build a long series of accounts, tracking the creation of bitcoins and their transfer between different people on the network, effectively making it a form of money.
The technology is called a blockchain because what you end up with is an enormous chain of blocks of transactions, one after another. Each ten minutes or so the network will add a new block of information that encodes all the transactions that are going on to the network from the last ten minutes.
For a transaction to be added to a block, the owner of an account that has bitcoin in it, needs to use cryptography to sign a message from that address, certifying that they want to move bitcoin to another address. When a block is created, all the computers on the network certify that there are enough bitcoins at that address for them to be transferred.
They all agree on what the block is following predefined rules, then move on to creating the next block. For various reasons it’s impractical to tamper with older blocks, so once your transaction has been on the network for a while, you can be confident it will stay there. Everyone can see every transaction on the Bitcoin network, though some later protocols have made it possible to send other kinds of cryptocurrencies in a way that isn’t public.
The computers running this Bitcoin or other blockchain software are doing so because they’re participating in a competition to add blocks to the chain. To get the right to add a block to the chain, you need to solve a very difficult math problem. Each time someone succeeds, the network will create some new bitcoins to give them, paying them for their work.
There’s a need to have a lot of processing power on the network, dedicated to solving these math problems, because if someone could control more than half of the processing power on the network, they could in principle launch an attack that would allow them to spend any bitcoins they own more than once.
Having all this processing power there to make such an attack unviable, famously uses a lot of electricity, which is one of the technical problems that Vitalik has been working to fix.
Bitcoin and other similar networks can process 7 transactions between people each second. This in principle allows people to buy and sell goods, without having to trust a bank to hold their money and make the transfer, or anything like that. So even if a bank would refuse to help you buy drugs from a drug dealer, you could use Bitcoin to pay them, and indeed illegal transactions like that have been among the most popular uses of Bitcoin so far.
So it functions something like cash on the internet. But it also has the weakness of cash that if someone steals your cash out of your wallet there’s nothing you can do. And if you pay someone cash for something, then they never send it to you, you’re screwed.
Cryptocurrencies have famously had extremely unstable exchange rates with the currencies we’re all used to using every day. Sometimes they’ll triple in value in a day, or decline to a third of what they were yesterday. This is pretty natural, because their supply is completely invariant to how much people are willing to pay for them. If the demand to hold bitcoins goes up, no more bitcoins get made, so the price can fly up.
It’s also natural because people have no idea how much people will want to use Bitcoins in future, and a lot of people are buying and selling cryptocurrencies are speculating about their future prospects. But that has made them a terrible way to store a certain amount of value reliably.
Some people are trying to create stablecoins — cryptocurrencies that would have a fairly stable value in terms of USD or Euros or whatever. Of course, it’s easy to devalue a cryptocurrency by just having the protocol set to make more if the price rises too high. But what about preventing its value from falling? That’s a lot harder. One way to do this is by holding lots of USD or other assets, and standing ready to buy the stablecoin at that price. But the ideal would be to make the price stable without having to sit on one USD for every such coin. And pegging currencies like this, as it is called, has a poor historical track record. Many countries have tried to make their currencies have a particular value in another currency, and sooner or later seen their values crash.
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OK, why might any of this matter? Vitalik and I talk about whether we can get the blockchain to work to run currencies, but to be honest that isn’t where I see much upside. Most of us already have access to acceptably stable currencies, and the costs of sending money between people or countries can be significant, but nothing crazy.
The problems that I’m interested in are coordination problems as a whole. The blockchain or other ideas Vitalik is working to develop might help humanity work together to solve the challenges we share.
Many many problems can from one point of view be seen as coordination problems. This becomes apparent if you study economics and think about market failures in goods that aren’t fully private.
But it takes a particular view to see it. Let’s just run through a few examples.
A first easy one is that most people would prefer to live in a world where others didn’t suffer in horrible poverty, simply because they dislike others having bad lives. If their contributing a small amount of money meant that everyone else did so as well, and the problem would mostly be solved, then they’d be happy to do so. Inasmuch as people all around the world value extreme poverty being eliminated, a donation you make to someone who’s extremely poor, not only benefits them, but benefits everyone else who cares about them.
Within nations we have the structures that allow us to coordinate to solve this issue, which is one reason that the welfare system exists. Many of us agree to contribute to the redistribution of money to the poor, so long as others then have to do so as well, through the tax system. But no similarly powerful voting and coordination mechanism exists at the international level, which greatly reduces how much money gets transferred from rich countries to poor countries.
A second related example, is that many people think that eating meat isn’t ideal, and would like it for animals not to be suffering terribly in agriculture. A decent fraction would be happy to become vegetarian if meat substitutes were nearly as tasty and cheap as meat is now. If 3 billion people could get together and decide to all become vegetarian simultaneously, you can bet that with the massive incentives to do R&D, we would very quickly invent meat and meal substitutes that were that good.
So the problem could be significantly solved this way in a few years, if not months. But there is no way for so many people to get together and agree to do this, so it doesn’t happen. And even if they did agree, there’d be the incentive for each individual not to stick to the agreement once it had been made.
So the problem of animal cruelty, which initially seems like a very individual issue, can also be seen as a collective action problem.
Along similar lines, if we wanted to fund the R&D into green energy that would strike a decisive blow in the fight to prevent catastrophic climate change, it would probably cost less than $1,000 per person in the world to do that. Many many people would be willing to contribute that sort of amount, in proportion to their wealth, if and only if doing so meant that everyone else would pitch in as well, and the problem would therefore be solved. But again, there’s no effective way to create or enforce such an agreement.
The same is true of funding the fixed costs of addressing many shared problems, like preventing common diseases. Very often those fixed costs take the form of funding scientific research to produce knowledge we all then share, but it can also take the form of a piece of infrastructure that only makes sense at a huge scale, like a sewer system for a big city.
I mentioned climate change, but the same applies to global catastrophic risks more generally. It’s in everyone’s interests to ensure that humanity doesn’t suffer some terrible catastrophe that ends up harming most of us, whether that’s a nuclear war or an asteroid impact or a terrible pandemic, or whatever else. But for me as a selfish individual, it makes no sense for me to work to solve those problems just to extend my own life expectancy. The benefit of my work would go overwhelmingly to other people.
Now of course governments to some extent solve all the problems I’ve described above. The US government as a whole overseas 5% of the world’s population, so it has much more willingness to spend money to prevent a global catastrophe than any one individual. That’s why it can spend billions identifying and tracking many of the asteroids and comets in our solar system.
But there are serious problems here too, because good collective decision-making is a collective good that suffers the same underlying problem I’ve been describing. When each of us votes, 99.99999% of the impact that that vote has is on other people in our country or the world. The effect that the wisdom of our own votes has on us is basically nothing. So, unlike when we’re buying a laptop for ourselves, the selfish incentive to vote wisely is mostly absent. This is a phenomenon known as rational irrationality.
Similarly, if you see the government doing something terrible that affects everyone in the country a little bit, each person has almost no personal incentive to make a fuss about it.
Along the same lines, I’ve discussed on this show so many times how journalism seems like a total dumpster fire. The underlying reason is, again, the coordination problem known as public goods provision.
Each reader would be happy to pay a few dollars a month towards outstanding journalism, if doing so meant that the country was well informed and well run. The private benefit they’d get from living in a more sane country would be easily worth it.
I have a friend who pays $500 a year to get a subscription to the Financial Times, which both of us think is a very unusually thoughtful newspaper. But he doesn’t read a word of it. He just funds it because he thinks it’s very valuable for society as a whole for the Financial Times to exist.
But he’s an unusual person. It’s very hard to get people to contribute much to fund the creation of journalism. If I get a subscription to a good newspaper, that doesn’t cause anyone else to do so. So I’ve paid all this money out of my own wallet, but barely made a dent on how well the country is governed.
For sensible people who prefer reading fun stuff like celebrity gossip, rather than learning about tragic or annoying things that barely affect them, which should be most of us, the existence of the Financial Times is a public good much more than a private one. So even if people could only get access to the articles by subscribing, that wouldn’t solve the problem.
So to sum up, here are just some things that have major ‘public good’ aspects, in the economic sense of the phrase public good, which is to say that people get the benefits of them, even if they don’t contribute to creating them:
The elimination of poverty
Reducing the risks humanity faces as as whole
Producing information about what’s happening in the world and how to fix those problems
Making smart decisions collectively, whether as cities, or countries, or as a species
OK, so that’s a lot. Really, it’s almost everything. If we could eliminate 1% or 10% of the public goods property of these problems, that would make a meaningful difference, perhaps transforming the world in visible ways.
To be clear, I don’t want to say that the framework of public and private goods is the only way of conceptualising what’s allowing these problems to persist. But I do think it is a powerful one that can give us some insights.
OK so that’s a big diversion into why when I see something that might help solve coordination problems and provide public goods I get very excited.
What does that have to do with today’s conversation?
Vitalik Buterin and others involved in cryptocurrency economics, or the RadicalxChange movement, have been thinking a lot about what new institutions or incentives we could create that would make a dent on this problem. Blockchain might provide new ways for a group of people to set up those institutions, but they’re interested in other options as well.
An example of progress on this problem from the past is patents. We took what was mostly a public good — breakthroughs in science and technology — and decided to give people an incentive to invest in it and publish their discoveries, by making it a bit more of a private good, by giving them a monopoly on their new insights for some period of time. I think that mechanism is overrated today and it has major problems, but it’s probably better than having nothing at all.
One way to get people to contribute to a public good might be to create a program that runs on a blockchain, which says that if 1,000 people each commit $10 worth of a cryptocurrency to a newspaper, it will get all that funding. But if they don’t reach 1,000 people, then it won’t and all of the people who committed will get their money back. Kickstarter already works like this. But there’s a serious free rider problem here — everyone would rather that other people join that group of 1,000, so they didn’t have to.
An advance on this idea that Vitalik has written about is quadratic funding. Basically, let’s say you think it’s really useful for society that newspaper X exist and have money for its investigative journalism, but you don’t particularly want to read that journalism yourself.
With quadratic funding, you could put a small amount of your personal money towards that newspaper, say, $10. For mathematical reasons I’ll skip over here, we’d then take the square root of your private contribution, add it to the square root of everyone else’s private contributions to the newspaper, and then square the total. The government, or another funding source, would then match those private contributions in some proportion to that figure.
The crazy thing is that if the government actually gave exactly that full sum, then each person would have the selfish incentive to personally contribute an amount that would then collectively fund this public good at the right level to maximise the welfare of society as a whole. Which is an amazing theoretical result. There’s problems with that model, but if the government just gave 1% of the resulting sum of square roots, it could still represent a big step forward in public good provision from where we are today.
Now, if you had the right pool of matching funding, and each individual had a unique identity, then it could be fairly easy to operate a funding scheme like this on a blockchain. Though you could do it using non-blockchain technology too.
This is one of many ideas on the drawing board today that might be transformative if we could actually implement them.
Another quite wild idea, if we mostly used blockchains to run our money, and could get blockchains to know what was going on in the real world, would be for countries to commit huge sums of money to an escrow program would only return the money to them if there wasn’t a war between them. So, hypothetically the US and China could stake $1 trillion at the start of each year, which the blockchain program would only give back at the end of the year if neither country killed a single soldier of the other country. Now there are probably several fatal problems with this proposal, but maybe there are other incentive structures like this which we can imagine which could nudge states towards cooperation and peace between, which is probably a key determinant of whether the future of humanity will go well or badly.
That’s probably enough from me about why this issue matters so much. I’ll link to a great and lengthy paper which goes into these issues in the show notes called Recent Developments in Cryptography and Possible Long-Run Consequences if you’d like to learn more.
I don’t like to talk this much at the start of the show, but some people who listened to this interview thought without it it would be unclear why it matters.
So without further ado, here’s Vitalik Buterin.
Robert Wiblin: Thanks for coming on the podcast, Vitalik.
Vitalik Buterin: Yeah. Thank you. Good to be here.
Robert Wiblin: So, I hope to talk about your views on long-termism, how to improve the world, and how to better coordinate humanity as a whole. But first, what exactly are you spending your time on at the moment and why do you think it’s really important work?
Vitalik Buterin: Sure. So most people know me as the Ethereum person, and I do spend a lot of time working on Ethereum.
Vitalik Buterin: The biggest thing in Ethereum land right now is Ethereum 2.0, which is this big multi-year long upgrade that we’ve been working on to try to massively increase blockchain’s scalability with sharding, and a massive increase in security with proof-of-stake, and to improve its programmability, change a whole bunch of technical things that we probably got wrong the first time. So, that’s been the big thing that’s excited a lot of us for years, but now it’s finally coming to fruition. There’s these big teams around the world that are working on – not just thinking about what the protocols in Ethereum 2.0 should look like, but actually implementing it. So, the first phase of Ethereum 2.0, which has the proof-of-stake, is going to probably come out very early next year.
Vitalik Buterin: There’s already some test networks. They’re starting to link different clients together and make different implementations written by different teams to talk to each other. A lot of really exciting stuff there.
Vitalik Buterin: And yeah, and I think I’ve said it publicly a lot of times that I believe in the potential of blockchain technology, but on the other hand blockchains as they currently exist are in many ways a joke, right? Like 15 transactions per second… you’re not going to run the world economy on top of that. And then the insanely gas-guzzling proof of work that I’ve criticized many times as well. So I’m definitely just really excited about turning Ethereum into a system that we can really fully be proud of and, and expect it to push ahead and actually become useful for a lot more things.
Robert Wiblin: Well, we’ll talk about some of those criticisms of blockchain technology as it stands today in just a second. I guess it sounds like you’ve managed to carve out time to actually continue working on a lot of the technical sides of things and not get kind of bogged down in the politics or perhaps the funding or bureaucratic aspect of … I guess there’s organizations built up around Ethereum and blockchain now, which I could imagine just absorbing all of your time and management.
Vitalik Buterin: Yeah. And in theory, having more organizations is definitely interesting and weird because … and first of all it’s definitely not like a conventional company, like we don’t really have bosses that hand orders from the top-down to the entire structure. We have teams, and teams have leaders, but the way that the teams and the people inside of them, their way of communicating with each other is this fairly unique thing that we’ve just had to learn and figure out over the course of the last couple of years. And a big part of that does mean that the teams that are working on the different parts of the protocols have a lot of autonomy to them, which is also good for the people running the Ethereum Foundation because it means less work there. But I mean there is still a lot of technical coordinating work that needs to be done.
Vitalik Buterin: And the other good news is that I’m not the only one that doing it. So we have a lot of wonderful people, like Danny Ryan from the research team deserves a huge amount of credit for the work that he has been doing. Talking to the different development teams and getting them to coordinate together more.
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Crypto today
Robert Wiblin: So I guess to give some structure to the conversation today. I think first, first we’re going to talk about kind of the blockchain and cryptotechnology as it stands today and how that’s working out. And then we’ll move on to talking about potential future applications for blockchain technology and how it could potentially end up having a big positive impact or perhaps not. And then we’ll talk later on about long-termism and existential risks and effective altruism and things like that.
Robert Wiblin: So I guess for this interview, I’m in the slightly awkward position of being a huge fan of you and your writing and all of your research. But I’m pretty skeptical of blockchain technology, maybe relative to a lot of people who might interview you, at least in terms of what it’s managed to accomplish so far. Though it sounds like you’re perhaps even more skeptical of its accomplishments so far than what I thought.
Robert Wiblin: But all of that said, I have no idea how useful it could turn out to be in the future, which is one of the reasons I’m very keen to have this conversation, to try to see whether it could potentially accomplish a lot more good going forward. If I can start with a skeptical quote from the cryptographic expert Bruce Schneier, who I imagine you’re aware of, who write this in Wired in February.
Robert Wiblin: “Do you need a public blockchain? The answer is almost certainly no. A blockchain probably doesn’t solve the security problems you think it solves. The security problems it solves are probably not the ones you have. Manipulating audit data is probably not your major security risk. A false trust in blockchain can itself be a security risk and the inefficiencies, especially in scaling, are probably not worth it.”
Robert Wiblin: “I’ve looked at many blockchain applications and all of them could achieve the same security properties without using blockchain. Of course, then they wouldn’t have the cool blockchain name though. Honestly, cryptocurrencies are useless. They’re only used by speculators looking for quick riches, people who don’t like government-backed currencies, and criminals who want a black market way to exchange money.”
Robert Wiblin: So your collaborator, Glen Weyl, is also pretty skeptical of blockchains as he mentioned when I interviewed him a couple of months ago. And you’ve been admirably candid about what they can and can’t do so far. So to me, kind of like Bruce, it seems like so far that the main application for blockchains has been to facilitate illegal activities like tax evasion or avoidance of capital controls or selling drugs. Which may or may not be good, but it’s not going to transform the economy. In terms of what it’s useful for now, what kind of functions can it deliver for me that I can’t get some other way through like saving my investments in a bank account, or in equities, or transacting using my credit card. Is there anything?
Vitalik Buterin: Yeah. I probably want to break my answer up into a few parts.
Vitalik Buterin: So the first part is, what blockchains have done up to today, which I would say is realistically pretty much entirely cryptocurrency.
Vitalik Buterin: Blockchains beyond cryptocurrency are themselves a big sector that I’m very excited about. But being realistic, there has been very little actual deployment of blockchain applications outside of cryptocurrency so far. And I do think that’s going to change and it’s starting to change. For example, in Singapore there is this thing called OpenCerts, which is basically using blockchains to verify that certificates like university degrees haven’t been revoked yet. And they’ve managed to get partnerships with a lot of universities and different institutional entities. So there’s things like that. But now and in the past, cryptocurrency has definitely had the biggest impact.
Vitalik Buterin: And it’s definitely had both good and bad consequences. On the bad side, there’s obviously hacks and thefts and ransomware and all the things that people already talk about. And on the good side, I think people do underestimate the extent to which it’s actually helped people by making it easier to move money around.
Vitalik Buterin: For example, I visited Africa two months ago and there was this hackathon in Cape Town and I talked to one of the local African community members. This was a guy from Nigeria. And I asked him, “What do people use blockchains for today?” And his answer was actually pretty simple. It’s just “There is a bunch of people here in Africa that are working remotely as software developers or something else, for companies in first world countries and they need to have a way to bring that money back to their homes so they can feed their families and live where they are.”
Vitalik Buterin: And the nice thing with cryptocurrency is that it’s actually a lot cheaper than many traditional channels, including things like remittance companies. And sometimes people try to measure this and they say, “Oh well, these little quaint remittance companies are going nowhere, the sector is tiny”. But the nice thing about cryptocurrency [inaudible 00:08:20] is that it’s about decentralization and you don’t need a frigging remittance company to do remittance. You just take the money, turn the money into Bitcoin, then sell the bit or ether or whatever, sell it on a local exchange and you’re done. You have it.
Vitalik Buterin: So it acts as this global layer that basically says, instead of needing to have institutions that operate both in, say, North America and Africa, you have one class of institutions that operates in North America, lets you convert money over to cryptos. Then you have another class of institutions that operates over in Africa, that acts as the local exchanges and apparently the local exchange situation is actually pretty good there. Then you sell the cryptocurrency and you get the money.
Vitalik Buterin: So there is definitely genuine value in just pretty simple and dumb things like that. And otherwise, you definitely correctly identified that kind of censorship resistance flavored things are another kind of category of usage that just naturally is attracted to this sort of thing. Because that’s a big property that the technology has. And there’s downsides to that, but then there’s also upsides to that as well. And especially as we enter into this less favorable geopolitical environment where you’re going to have a lot of actors trying to restrict people’s ability to do things with each other for reasons that have more to do with zero-sum competition than making humanity better, trade wars and all that. So I definitely agree it’s a complicated issue.
Vitalik Buterin: But the second part of this question is ‘blockchains in the future’. The big thing that I think will make blockchains in the future more interesting is basically if we managed to actually solve a lot of the big problems that make them hard to use today. Where scalability is probably the big one, and because 15 transactions a second is like basically nothing. And if you want to run global economies, they need to go into the tens of thousands of transactions a second. And Ethereum 2.0 with sharding is hopefully going to let you do that, which is nice and hopefully will provide enough capacity that people can actually run a lot of interesting things on top of it.
Explanation of sharding
Vitalik Buterin: Also, solutions to privacy. Another thing is solutions to security.
Vitalik Buterin: So, one of the negative consequences of this is just all these cryptocurrency thefts that keep on happening. We’re like, “Another day, another $34 million gone from an exchange.” And the nice thing about that problem is that it’s one of those problems that I also do think that with better technology we can mitigate over time. So with a lot of those things being improved, I expect that, first of all, a lot of these non-financial applications. Like as I mentioned, there’s a certificate verification project which is quite interesting and promising. Just the stuff involving replacing things like online identities and HTTPS and all of these things with more secure and more decentralized alternatives. And blockchains are a big part of that.
Vitalik Buterin: So, I guess the way that I view blockchains in non-financial contexts technologically, is that with traditional cryptography you can prove to someone that you did something. But with a blockchain, and not with cryptography, you can prove to someone that you did not do something or, so, you can prove to someone that you have some certificate which did not get revoked. Or you can prove that, you know, you did some computation that included the outputs of everyone who submitted an input and you didn’t censor people.
Vitalik Buterin: So one interesting application I wanted to highlight here is there’s … I published this post on ethresear.ch, our research forum, where I had talked about the possibility of using blockchains to do collusion-resistant mechanism design infrastructure. And we’ll talk about what that means a bit later. But for now think of it as just secure online voting.
Vitalik Buterin: And online voting right now is like notoriously insecure for a bunch of reasons. But, one of the reasons why is that it’s hard to secure because there’s all these different requirements to it. And so I came up with this design where you combined together the properties of a blockchain, which basically gives you a kind of non-censorship guarantee and says what the result is, you can prove that the result actually is the result taking into account everyone’s votes. And so the authority didn’t just decide not to include some people’s votes, together with encryption for privacy, to get… and coercion-resistance, which has this strong level of privacy that says you can’t prove to other people how you participated, even if you want to. Which is really important for voting to prevent things like vote selling.
Vitalik Buterin: And together with zero-knowledge proofs which allow you to prove that the tallying authority actually computed the results correctly despite all of the votes being private. So you actually need to combine these three components together and a blockchain is one of them. And if you treat a blockchain as this cryptographic tool, then, you can create these different kinds of systems and they potentially would allow us to design these different gadgets that incorporate different kinds of mechanism design into our lives in a way that’s hopefully actually secure and not going to break.
Robert Wiblin: Okay. Let’s just back up a second. So I guess me and maybe other listeners who know a bit about blockchain, but not that much, might be familiar with a couple of issues that there are.
Robert Wiblin: You mentioned the security problem, so that’s like Bitcoin and other cryptocurrencies getting stolen a lot. Then there’s this issue of lots of electricity being used up in order to secure the network, which I guess that’s because you have like a proof-of-work method of securing it and the hope is to move to a proof-of-stake which doesn’t require all the computation.
Explanations of proof of work and proof of stake
Robert Wiblin: And then there’s this issue of the kind of bottleneck on the, on the number of transactions which you mentioned that you’re hoping to solve with sharding, which I guess is something like breaking up the blockchain into many different streams that each can process that that number of transactions and then they interact between one another sometimes. How confident are you that each of those technical problems can actually be solved? Are you sure that ultimately we’ll come up with a technical solution or is it still an open question?
Vitalik Buterin: Yeah, so proof-of-stake, very confident. And so we actually had a spec freeze of a phase zero of Ethereum 2.0 which is basically the proof-of-stake part a couple of weeks ago. The spec is theoretically frozen and the only thing that can change it is if people discover security bugs. But the fundamental concept of proof-of-stake and the basic details of how the design works is something that’s been thought about for years and we’ve figured out everything that we could figure out in theory and things have been fine. Now, then there’s also proof-of-stake in practice and with proof-of-stake in practice, the main things that worry me are basically just how the incentives in the protocol interact with the real world.
Vitalik Buterin: So things like, for example, are people just going to be lazy and run all their staking nodes on AWS? Are people going to be lazier and just do all their staking by sending their money to Binance, and Binance are going to stake for everyone. Are people going to stake in ways that are insecure and lead to a bunch of people getting hacked at the same time? And how decentralized is it actually going to be. Are things like ‘bribe attacks against validators’ realistic? All of these different issues that have to do with the finer points of how incentives defined in the protocol interact with human motivations. That’s probably the most uncertain thing.
Vitalik Buterin: The good news is that some of the uncertainty is starting to be resolved already. So we’re first in a proof-of-stake chain of the class of proof-of-stake that we’re doing to launch. So Cosmos got launched a couple of months ago. And Cosmos has these penalization slashing mechanisms, they have rewards, they have all of these things and they’ve already been having some issues.
Vitalik Buterin: And that’s been interesting because it both validates the concept and the couple of times that they’ve had problems, they even validated some of our design decisions. So, and [inaudible 00:17:01] we project wish them well and, it’s been like we’ve learned quite a bit from that already. And of course when, Ethereum 2.0 launches, we’re taking this kind of multi-pronged strategy where we first launch proof-of-stake, then we let it run for a bit, prove itself, then do sharding.
Vitalik Buterin: I feel very confident about these things in theory. But in practice, I’m not expecting zero-to-one flavored kind of problems. I’m expecting one-to-n flavored problems, if you know what I mean. Like just 15 different edge cases that we just have to think about, that all leads to kind of small bugs that are fixable every time, but then just do end up becoming problems.
Vitalik Buterin: So in the case of starting just a peer-to-peer network that can handle many megabytes a second passing through it and that ensures all the data reaches everyone who needs it within a few seconds. There’s just things that we’re doing that haven’t really been done before. And also how that would interact with potentially powerful actors trying to attack it, all of these different uncertainties. So I definitely think that they exist, but they’re more the sort of thing that we just have to cross when we get to it rather than showstoppers and at this point I’m definitely pretty confident that there aren’t showstoppers.
Robert Wiblin: Do you want to comment on the computer security or theft issue? Whether you think we’ll be able to fix that one well enough?
Vitalik Buterin: Sure. Yeah. So there is probably three kind of sub-problems in computer security and theft in the crypto space. One of them is people giving their money to central authorities that screw it up. So like known bugs and getting hacked in all these other exchanges. The second is people keeping money in their own wallets and that getting hacked. And the third is putting their money into smart contracts and those contracts getting hacked.
Vitalik Buterin: So, for the first and… It definitely keeps being a concern. And the idealist in me wishes centralized exchanges would go away and we’d be able to entirely decentralize the ones for everything except just interfacing with the banking system. And there’s still the question of how close to that dream we can get reality to be. The technology behind decentralized exchanges has improved a huge amount over the last 12 months and there’s even things like Uniswap running that are fully decentralized but that have even better UX than the centralized stuff. So there’s reasons to be optimistic.
Vitalik Buterin: But then I think cross-chain like between Ethereum and other blockchains is the one area that decentralized exchanges haven’t really gotten a good handle on. So technologically speaking, there’s been a lot of work on trying to come up with these designs that don’t require central exchanges to keep custody of a huge amount of money, which is good. But, a second problem, which is if you have custody over coins, then what if your phone gets hacked, your laptop gets hacked, you lose your folios, your laptop and all of those things.
Vitalik Buterin: So pretty much ever since I entered the space back in 2011 I’ve been a huge enthusiast for multisig, which basically is, instead of having one key that controls the coins, the coins are basically controlled by a program and the program says “If two out of three keys or three out of five keys sign a message, then those coins to can be moved somewhere.”
Vitalik Buterin: And sometimes you can even have more complicated hybrid policies. For example, the Ethereum Foundation wallet has a policy that says that we have seven keys and if you want to send less than 1000 ether a day, then one of them is enough. But if you want to send more than 1000 ether, then you need to get together four of the seven. And that’s served us pretty well. Basically I want multisig to get adopted by just everyone, individuals, organizations. But then the problem is usability. For like who are your counterparties, what’s the format?
Vitalik Buterin: So I’ve been an evangelist for this thing called social key recovery, which basically says that you have an account and you have one master key that can do things, but then you also specify some set of other keys. And these other keys would generally just be like your friends. And the idea is that any majority of those keys could come together and switch your master key to something else. So if you lose your master key, they could recover it. In case your master key gets stolen, then the idea is that you would store most of your money in a savings wallet that would enforce like a one day delay before you can take money out, and so you’d get your friends together within the day so that they can switch the key and cancel it. And it’s a security model that exists in the real world already. For example, WeChat uses it for account recovery. So I definitely want to see more experimentation with social key recovery.
Vitalik Buterin: And then first for the third problem, which is smart contracts, like formal verification, I’m obviously excited about it, but then the other thing is that we just have to be kind of humble and realistic about the kinds of things that we can expect to be smart contract defined. And we want fewer 5,000 line contracts and more 50 line contracts. And one of the reasons I’m a big fan of Uniswap is that the design is so simple it basically is a 50 line contract. In practice it’s 200 but most of those are just convenience options, like you can get away with 50.
Robert Wiblin: So it sounds like if we managed to solve all of those problems that we’re still pursuing the dream of cryptocurrency being a medium of exchange where people might engage in lots of everyday transactions using cryptocurrency. Which so far has been something that has been … People are using it for remittances and cases where it’s transacting between people where the banking systems aren’t very well integrated or people are kind of unbanked. But I guess if you can solve all these problems then it might be possible for someone like me to actually want to use cryptocurrency to buy things on a day-to-day basis.
Vitalik Buterin: Yeah. And I definitely think the quality of blockchain technology can get there. And not just cryptocurrency, also non-financial things. So you’d own things, like self-sovereign identities. So basically having something that you can use to sign in to just regular web services that doesn’t depend on Google or Facebook.
Robert Wiblin: So why do you think people like Schneier are so vitriolically negative? Do think they just aren’t quite seeing like the technical advances that you think are likely to come eventually?
Vitalik Buterin: I think first of all it’s important for us to address that they have valid points like proof-of-work sucks, blockchains as they currently exist are unscalable, a bunch of the security issues haven’t been solved. So it’s important to be honest about those things. But it’s definitely, I think, also the case that a lot of the people who are kind of famously bearish on blockchains aren’t following the space as it’s going to be in five years and all the newer developments that have been happening there.
Vitalik Buterin: And I think there really are a lot of things coming down the pipeline that really can solve a lot of the problems, definitely not literally all the problems. Like having users protect their own money in their own accounts isn’t going to solve ransomware for example, but if we can at least start with the problems we can solve easily. If we can at least start with using crypto blockchain technology itself to deal with things like user account and exchange theft, then that’s a pretty big start already. And for the other things, I’m sure they can figure it out over time.
Robert Wiblin: Are there any problems or applications for cryptocurrencies or blockchain technology that people talk about which you think are bad applications of it, where it’s not the right solution?
Vitalik Buterin: Yeah, and there’s definitely a lot of things.
Vitalik Buterin: First of all, there are these applications that just say, let me put these entire really big files in like 2.6MB PDFs on the blockchain and I think even with sharding, that’s just going to be crazy expensive and not very pointful, especially when you can just like stick the hash of the file instead.
Vitalik Buterin: Also things like using blockchains to just store messages that don’t have any kind of value components to them. They just don’t really need this property of being verified by a large number of computers at the same time. There’s a lot of people that just use blockchains either just inefficiently or way more than they need to. So there’s definitely quite a lot of that.
Vitalik Buterin: I mean there’s blockchain applications that people do that I think are stupid regardless of whether or not they’re on the blockchain. And even just the ideas behind the large portion of ICOs right now just don’t make any sense at all. So there’s definitely a lot of things that I can argue against and often pretty publicly.
Robert Wiblin: Yeah. Some applications that I’ve heard that seems strange to me … Well, voting where it seems like pen and paper, at least for like national elections is a lot more trustworthy than anything on computers, at least for me.
Vitalik Buterin: Yeah. As I mentioned, like you can use blockchains to make voting kind of better, but like you have to really think hard about how you’re doing it and if you’re just rolling votes on chain, that’s like counterproductive. Like if you do that then someone can make a smart contract that says if you vote for the Purple Party, I’ll give you a 0.01 ether and you’re just going to get a bunch of votes for the Purple Party, and guess who’s running America in 2020, so-
Robert Wiblin: Yeah, I guess people have talked about it as using it as like auditing supply chains to make sure that products came from particular places. Which just seemed like it was solving the wrong problem with that one where it’s like the issue is like fraud along the line where people could just put lies in the blockchain, right?
Vitalik Buterin: Yeah. So this is one example of a problem that people sometimes think blockchains solve, but really they don’t solve, which is an Oracle problem. People often have this background impression that blockchains are this technology that provides trust. And the reality is that they provide a specific kind of trust for a specific kind of claims.
Vitalik Buterin: And a blockchain has no idea whether the temperature in Toronto is 10 degrees or 20 degrees or 80,000 degrees. It has no idea whether the thing you just shipped me in the mail is a real phone or a fake phone or a real phone that’s secondhand and is going to break in two months. A blockchain has no idea what the price of real world currencies are, and so on and so forth, and there’s this big long list. And so a lot of blockchain applications basically do require either combining together blockchains with other data sources and you using a blockchain more as this kind of place where the different things get put together and organized or sometimes the data is just so subjective that like it doesn’t really make sense at all.
Vitalik Buterin: Like for fire insurance for example, like what are you going to do there? The problem is evaluating what the level of damages require. That’s like incredibly subjective and there’s no way a smart contracts is going to help.
Robert Wiblin: Yeah, and another application that seemed odd to me was people talking about using the blockchain to kind of get more autonomy over the kind of data that online services like Facebook and other websites hold about you. I don’t understand how it would function as kind of a data storage system because it seems like anything you put on there is getting duplicated so many times that the cost becomes enormous. Is there something that I’m totally missing there?
Vitalik Buterin: There is a version of that which actually makes sense, and the version of that which makes sense is that you have services where the data is kept client-side by default, but then like people have tested the data and there’s zero-knowledge proofs over the data. And then if you want to sell the data, you can use cryptographic protocols that basically say “I’ll give you the data,” or “I’ll let you compute one particular function over the data if you pay me some number of points.” And then for that to work like you can piece together like cryptocurrencies and blockchain hash commitments in zero-knowledge multiparty computation. But for something like that to work, that’s a pretty serious challenge. You’re not just going to shop patches of stuff on the chain and sell it.
Robert Wiblin: Don’t those zero-knowledge proofs require a lot of computation power or have I misunderstood that?
Vitalik Buterin: They do and that’s definitely one of the biggest kind of downsides of them right now. But one of the really nice side effects that blockchains have is that they are leading to a huge amounts of money being pumped into making these zero-knowledge proof protocols work better. And so back in 2013 there were a couple of academics working on these things in the shadows, but now you have like 20 different protocols and there is dozens of engineers trying to figure out how to cut the proving times down. In some cases, working on using ASX to cut proving time down, trying to cut down the size of the proofs and verification times. So there’s definitely a lot of work being done there that can make things possible in a few years that weren’t possible a few years ago.
Robert Wiblin: What do you think are the most widely held but incorrect beliefs in the crypto community as a whole?
Vitalik Buterin: Oh, that’s interesting. The crypto community isn’t really a unified thing and there’s definitely kind of different sub-tribes inside of the crypto community. And I think different sub-tribes have different misconceptions. Like on the Bitcoin side for example, like this idea that 2% inflation is this thing that’s wrecking the economy and the next… And the next big step for progress would be turning humanity into a type one civilization that roams the stars is to get rid of existing fiat currencies and replace them with this 21 million fixed supply kind of thing. I think that’s crazy. On the side of things like EOS and Tron and these more kind of semi-centralized projects. I think they have this belief that basically says like, “Oh these blockchains are not super decentralized anyway and so we’re just going to be even more centralized and so we’re going to get more efficiency without getting any of the downsides.”
Vitalik Buterin: But I think they don’t really realize the kind of, some of the more subtle benefits that de-centralization gets you and a lot of those things are going to come out like if political environments become less favorable. And on the side of things like people trying to use blockchains or … Well it depends on the use case, right? But like if it’s immense then, there is just the fact that like number one existing payment systems work in a lot of contexts but existing payments systems also don’t work well in a lot of contexts and kind of seeing both sides of that is… I see a lot of people kind of making a mistake one way or the other where they think that either cryptocurrencies are going to completely overtake Venmo or they think that there is no room for them at all.
Vitalik Buterin: Oh, here’s an interesting one actually. I think a lot of people in the censorship resistance space in general, so like both people in the blockchain space that care about censorship resistance as a topic and people outside of it, they tend to kind of not have very good models of politics. Basically, a lot of people have this mindset that says, “We’re going to create this thing, and it’s going to just on its own completely be able to overpower governments and they’re not going to be able to do anything about it and it’s just going to turn the world into a crypto-anarchy and that’ll be great.”
Vitalik Buterin: And I think they underestimate the power that governments do have. So you look at things like uh, the great fire wall, like different countries attempts at enforcing copyright infringements on the Internet. Crackdowns on the sex industry — a lot of these different kinds of censorship.
Vitalik Buterin: They, there are many cases in which governments try much less hard than they could if they really wanted to. And so, you know, you have these restrictions, then you have people using technology to get around these restrictions. But then you have counter measures against those technologies. And then you have counter measures against the counter measures, but the parties on both sides and particularly on the government side are limited by much more than technological constraints, right? They’re also limited by their populations opinions on basically whether or these restrictions are just. They’re limited by enforcement costs. They’re limited by social costs. Schelling fences. Like if we allow this, would that lead to allowing this other thing, can we ban this without risking banning other things? All of these different complexities. And if you’re building censorship resistance software, then you’re not just playing this kind of great battle of technology versus a state here.
Vitalik Buterin: You’re also really interacting with these complicated political equilibrium and what does that mean? Well the answers to those questions are really, really complicated and specific. It’s not any sort of single answer. It’s a category of questions that I think you could get some good answers out of if you think more about it.
Robert Wiblin: Do you think it’s possible