Vitalik Buterin: Ethereum 2.0 | Lex Fridman Podcast #188

1. 0:00 – 1:19

   Introduction

   1. LFLex Fridman0:00

      The following is a conversation with Vitalik Buterin, his second time on the podcast. Vitalik is the co-founder of Ethereum and one of the most influential people in cryptocurrency and technology broadly defined. A quick mention of our sponsors: Athletic Greens, Magic Spoon, Indeed, Four Sigmatic, and BetterHelp. Check them out in the description to support this podcast. As a side note, let me say that Ethereum, Bitcoin, and many other cryptocurrencies have been taking a wild ride of prices going up and down in the past few months. To me, the prices were never as important as the ideas, both technical and philosophical. Cryptocurrency has the potential to empower billions of people to participate in the global economy in a way that resists the manipulation by centralized power. Also, with smart contracts, Layer 2 technologies, data pools, NFTs, and of course, integration of artificial intelligence to the whole thing, we have the opportunity to build tools and worlds that transform physical and digital life as we know it, hopefully minimizing the suffering in the world and maximizing the fun. This is The Lex Fridman Podcast, and here is my conversation with Vitalik Buterin.

2. 1:19 – 18:35

   Shiba Inu story

   1. LFLex Fridman1:19

      Let's first talk about Shiba Inu, if we can. Also known as Shiba Token, code SHIB. For context, Shiba Inu was created in August 2020, modeled off of Dogecoin by the anonymous founder known as Ryoshi. On May 10th this year, it had a market capitalization of over 13 billion. And, uh, maybe you can explain this, but in a crazy move, you were given half of SHIB's, uh, total supply. You, uh, burned, AKA destroyed, 90% of it. That's worth $6.7 billion, and you donated 10%, that's worth, uh, 1.2 billion, uh, at the time, to an, uh, India COVID-19 relief fund, saying you don't want to be the locus of this much power. This is, uh, fascinating. Why and how were you able to walk away from this much money and this much power?

   2. VBVitalik Buterin2:26

      So I- I should probably start by, uh, giving some of the backstory around, you know, these coins and this concept of giving me coins. Uh, so, you know, first of all, Shiba Inu, as you said, is this kind of knockoff of Dogecoin, right? And Dogecoin was this initial kind of fun coin that was created back, I think, around 2014 or so. And it was just created by Jackson Palmer, you know, who had put it out as a joke for a couple of hours, and a community formed around it. And at the beginning, people didn't take it very seriously. I actually remember putting about $25,000 into Doge sometime around 2016, and I just remember, uh, thinking to myself, like, "Okay, how am I going to explain my, to my mom that I just invested $25,000 into dog coins?"

   3. LFLex Fridman3:12

      Yeah.

   4. VBVitalik Buterin3:12

      And, like, what even are dog coins? Like, the only interesting thing about this coin is that there's, you know, a logo of a dog somewhere.

   5. LFLex Fridman3:19

      Yeah, yeah.

   6. VBVitalik Buterin3:19

      Um, but, you know, of course, that ended up being one of the best investments I've ever made, and, uh, it did really well, and then at the end of 2020, Elon Musk, of course, you know, started talking about Dogecoin. And the market cap just, like, shot up to about $50 billion. Actually, and it shot up multiple times, right? Like, the first time, it went up from about 0.8 cents to about, like, 7 cents, and this just happened all in one day. And I remember, um, this was when ba- I was still in, uh, Singapore in the middle of, uh, COVID, and it wa- I saw that the price just went up by 1,000%, and I was like, "Oh my God, my Doge is worth, like, a lot." And so I, uh, immediately called up some of my friends and told them to, like, drop everything and scramble, and I, uh, sold half the Doge, and, uh, I got $4.3 million, donated the proceeds to GiveDirectly. And a few hours after I did this, the price dropped back down from about 7 cents to 4 cents, right? So I managed to sell the Doge at the top, and I remember just, uh, feeling like I was such an amazing trader. But then, of course, you know, the price went up from 4 cents then to seven and then 50, and just, like, Doge becoming this big phenomenon where there's even a lot of people that have heard of Doge that have not heard of Ethereum is just, like, something even I wasn't predicting, right? And so after that, of course, you know, we have Doge, and then people are thinking, "Well, you know, if the leading dog token is worth $50 billion, then surely, the second l- largest dog token wo- deserves, you know, at least 7 or 8 billion," right? Like, I- I feel like that's the kind of, what the mindset of these Shiba people is. Um, so then, of course, they did this other gimmick, right, where they gave me half the Shiba token supply. Um, they were actually not the first project to do this. Uh, so around the end of 2020, there was this weird project called Tellor. It's like T-E-L-L-O-R. I think they're a Chainlink competitor or something like this. But I remember they just, like, dumped $50,000 worth of their token into my wallet, and then they had their Twitter army just, like, basically run around saying, "Look, look at Vitalik's wallet. Vitalik holds Tellors. He's one of us. He's a supporter." And as soon as I discovered this, I just, like, publicly sold the Tellor tokens on Uniswap, and this created a bit of a Twitter splat. Now, the Shiba people were more clever. The Shiba people, instead of dumping to that wallet, they dumped to my cold wallet, right? So in a cryptocurrency, right, there is this concept of, like, cold wallets and hot wallets. Basically, like, the thing that actually owns your money is, like, this 80-digit number called a private key, right? And a hot wallet is one that private key is just stored in memory on your- on your computer, on your phone, really easy to access. Cold wallet means it's either on pa- written down on a piece of paper or it's, uh, on a computer that's just never accessed the i- the internet, right? So cold is very inconvenient, but cold is also much more secure, right? 'Cause even if that computer has some, like, viruses on it, like, it's- it's, like, air-gapped. It's not actually going to be able to upload it. So...... this cold wallet and, like, all the money is out of the cold wallet, so it's safe for me to talk about my setup now, right? But it was a laptop that was sitting in Canada, and I also had, um, two pieces of paper where I w- I wrote down two numbers on those two pieces of paper.

   7. LFLex Fridman6:33

      Mm-hmm.

   8. VBVitalik Buterin6:34

      One was with me, one was in Canada. And if you add those two numbers together, you get the private key. So because of COVID travel restrictions, and, you know, this is, this, uh, cold wallet's in Canada, like, it's very difficult for me to, um, actually access it, right? And I'm not sure if they knew this, maybe they just got lucky, but, like, basically they, uh, you know, sent a lot of, uh, these dog tokens into this wallet where I... it was very difficult for me to access it. But then I saw these dog co- tokens, I saw more and more people talking about them. And then at some point, I reali- like, realized that like, "Hey, these things are worth billions of dollars." And like, you know, there's lots of really good things that you could do with that amount of money and it would actually be a waste to just, like, see it go. So, I made the decision that, like, I would actually power through and figure out how to, like, safely, like, basically get my private key. Um, I actually had to call up my family, tell them to read out their number off of their piece of paper. I, uh, entered that into a fresh, uh, laptop that I bought from Target. Then I, uh, put in my other, uh, number on my piece of paper, added the two numbers together on the computer, there's the key. And at the same time, like, just scrambled for two days setting up a new wallet for t- where I could move my ETH to safely, like getting people to be multi-sig partners. Just, like, doing all sorts of, like, stuff that, you know, 10 years ago you would expect to just be part of a cyberpunk or, you know, science fiction novel but, you know, now it's all real. Uh-

   9. LFLex Fridman8:00

      So you were doing this all- all by yourself?

   10. VBVitalik Buterin8:01

       I-

   11. LFLex Fridman8:02

       Essentially.

   12. VBVitalik Buterin8:03

       Most of it by myself. So I need- I need-

   13. LFLex Fridman8:04

       'Cause you have to keep it secret.

   14. VBVitalik Buterin8:05

       Right. And I needed my family to, um, actually, like, go and read the- the number on their piece of paper and then I, um, in my new multi-sig wallet, like, there's other people that are signatories. Um, but, you know, I'm obviously not gonna reveal any details beyond that. But, so, I did this, right? And I actually managed to, like, get the private key, f- make the first transaction that would just move all my Ether to the multi-sig wallet so it's safe, and then second transac- uh, put the private key on my main computer then started, you know, like, going in and just selling some of the dog tokens and then just, like, giving them to these, uh, different charities. Now, at the time, I actually did not even, like, h- have any idea of how much you would be able to get, right? 'Cause like, on paper the dog tokens are $7 billion but, like, in reality it's a very illiquid market, you know? Are you gonna crash it by g- uh, after you sell 1 million worth? Are you gonna crash it after 10 million? Are you g- uh, might you actually be able to get, like, an entire f- 200 million? I had no idea. Um, so I definitely, like, m- was just of the mindset like, "Okay, again, I'll sell a bit, maybe I get some ETH." And then, you know, donated some ETH to GiveWell, donated some to other groups. And then, okay, I have some dog tokens, like, I don't have an easy ability to sell more myself, but then I'll just, like, give them to these groups and, like, you know, hopefully they'll do good things with them. Um, it was actually, um, I actually donated, uh, 20% and dumped 80%. Um-

   15. LFLex Fridman9:33

       Okay.

   16. VBVitalik Buterin9:33

       Yeah. So the cov- the COVID, um, India group got one batch and then there's another group that got another batch. And I don't want to say who they are 'cause I think th- they want to announce themselves at some point.

   17. LFLex Fridman9:45

       Sure.

   18. VBVitalik Buterin9:45

       Yeah. But, uh, you know, you- you can see the fact that these transactions were made on the blockchain. (laughs) Um, but, no, it was, uh, just very inter- in- interesting and unexpected and just an insanely crazy s- uh, situation.

   19. LFLex Fridman10:00

       It's been a couple of weeks. First of all, thank you for, uh, helping me, uh, hang up some curtains. This is... (laughs)

   20. VBVitalik Buterin10:06

       (laughs) .

   21. LFLex Fridman10:06

       This is, uh, a first for the podcast and, uh, shows, uh, that you're truly a special person, um, to be willing to help. But now, a couple weeks later, do you regret any aspect of that decision?

   22. VBVitalik Buterin10:19

       Um, I'm sure there are some things that I, uh, probably could have done better. Like, uh, I, uh, I was act- I was actually talking to some of these charities and I was impressed by just how much, uh, money they managed to get out of selling some of these coins. So, I, I probably could have done better by just, like, talking more with the traders and actually ensuring that, like, you know, th- they can do a better job of maximizing the val- the- the value of, uh, uh, of, uh, all of them. But, like, you know, it was a s- very stressful time and I did have to act quickly. Like, I, uh, I did manage to, you know, make a lot of the donations before the, like, uh, a few- a few days before the great crypto crash happened. Uh, so it was... And it's difficult to, like... Obviously, there's parallel universes in which I did better, but at the same time, there's also lots of parallel universes where because I hesitated more and tried to spend more time thinking, I missed the opportunity. Uh, so, you know, on net it's like a luck of the draw and I'm just, you know, happy that, uh, it w- everything was, uh, able to turn out as well as it did.

   23. LFLex Fridman11:27

       But psychologically, y- you mentioned stress.

   24. VBVitalik Buterin11:30

       Mm-hmm.

   25. LFLex Fridman11:30

       How hard was it?

   26. VBVitalik Buterin11:32

       Uh, it was stressful, right? I think... Well, one of the really stressful parts was just the fact that I, uh, had to basically move all of my funds, you know, including the 325,000 Ether from one cold wallet into another hot wallet. Or sorry, into another c- uh, multi-sig wallet. Um, and, you know, maybe the multi-sig wallet had a bug in it. Maybe there's, like, some mistake I'll make in the middle that causes the- the funds to get lost. Like, you know, it's... That part was stressful and, uh, I, uh, was definitely stressing out for two days. I'm, you know, triple checking the new wallet. I even did a bit of an audit of the code myself. I, uh, wrote my own, uh, JavaScript adap- to make confirmations because Gnosis Safe didn't work with the Status Wallet well. Um, so there was def- that whole thing was definitely a bit of a marathon. Um, I was also kind of w-... definitely a bit worried about, or uncertain, I guess, how the public and, you know, including the coin communities would perceive the whole thing. Um, but I was actually impressed. Like, I, uh, for every poster that was saying like, "No, you know, why, uh, why did Vitalik, like, rug pull on us? He was sup- uh, uh, th- his wallet was supposed to be a burn address." You know, there was, like, 10 people that were like, "Oh, you know, I thought I was just in this because it's a fu- uh, it's a fun pyramid gambling thing, but instead I, uh, ended up being part of this, uh, you know, great public good thing for humanity." And that's, like, even more amazing. Uh, so the e- the amount of that that I got was, uh, very, eh, impressive. So, you know, all in all, you know, I think, uh, the dog people did great (laughs) .

   27. LFLex Fridman13:07

       (laughs) "The dog people." Is there something you can extend to the bigger picture of it, in the principles you applied in making this decision? Is there some principles, philosophies that you apply also to, uh, the decisions you make around Ethereum?

   28. VBVitalik Buterin13:23

       Hmm. Um, I think, uh, a big one for me is just this idea that crypto, um, you know, isn't just an opportunity to give people, like, slightly better ways to s- to save value and all of these things. Like, it's also an opportunity to, like, basically create these, like, new digital institutions that could, like, serve the public good in new ways. And, and that's something that I've been m- interested in for a long time. Um, I actually even have this, uh, article in Bitcoin Magazine back in 2014 where I basically suggested this idea that, you know, you would have coins that represent causes and, like, people would just, like, buy and accept those coins because they support those causes. So, I think it's called Markets, Institutions, and Currency as a New Form of Social Incentivization or something like that.

   29. LFLex Fridman14:11

       Mm-hmm.

   30. VBVitalik Buterin14:11

       And, like, uh, and I'm sure you can find it and throw it in the links. Um...
3. 18:35 – 22:48

   Regulation

   1. LFLex Fridman18:35

      Well, you kind of briefly opened the door, so let's go there. (laughs) When it comes to, uh, government regulation of crypto-

   2. VBVitalik Buterin18:43

      Mm-hmm. Hmm.

   3. LFLex Fridman18:44

      ... uh, what's the best case scenario, what's the worst case scenario? In terms of, um, you know-

   4. VBVitalik Buterin18:51

      Hmm.

   5. LFLex Fridman18:51

      ... as you've kind of mentioned, Ethereum challenges the- the- the power centers of the world.

   6. VBVitalik Buterin18:57

      Mm-hmm.

   7. LFLex Fridman18:58

      And, uh, how do you see the interplay between gov- governments and this new technology that resists centralized power?

   8. VBVitalik Buterin19:06

      Mm-hmm.

   9. LFLex Fridman19:06

      Best case and worst case.

   10. VBVitalik Buterin19:07

       Mm-hmm. The- th- the best case is, um, that, um, you know, blockchains continue to prosper and we figure out scalability so that people can actually start doing things on block-, like, all, you know, all of the amazing use cases that people have been talking about, instead of today where a lot of the great stuff gets priced out because, you know, transaction fees are at $5 to $10.

   11. LFLex Fridman19:31

       Mm-hmm.

   12. VBVitalik Buterin19:32

       And then we see a lot of different, um, amazing applications happening on blockchains, you know, it could be, mm, DAOs creating new ways for people to inter- interact and organize with each other, new ways for artists to get funded, and just all sorts of these amazing things. And there's just enough public s-, um, public support, and just enough people that see that, you know, look, crypto is clearly doing a lot of good things. And, and, you know, there are definitely areas where there's tensions, but f- and there's areas where there's tensions like there could be some kind of creative and interesting approaches that get figured out, right? Like, you know, the concept of corporate taxes for example, right, like, you know, does it... It, it, that would disappear as a revenue stream if theoretically corporations just all get replaced by DAOs, but, who knows, like, maybe there's some other creative way by which, mm, DAO, m- like DAOs themselves can kind of be co-, um, you know, have some kind of encoded governance that ensures that they s-, have at least some of s-, some kind of bias towards ser- serving the global public good. And, uh, you know, maybe it does enough of, uh, DAOs can do enough of that that people are happy with it. And, and, you know, th- there are going to be things that people are unhappy about, there's always gonna be the people that, you know, wants to surveil everyone, but if th- on the, the kind of effect f- of crypto from just empowering people is greater than that, and greater than that in a way that people can just easily see, then, you know, that would be a good scenario, right? And we'll just, like, become incorpora- uh, kind of incorporated and accepted the same way as happened, uh, with the internet. Um, but the wor- and the worst case scenario would of course be a just, like, people su- like, suddenly, you know, flipping and going into moral panic mode, and just, you know, "Oh my God, like this technology is used by, like, you know, insert bad group of the day." And then, I don't think governments have the ability to ban crypto to the extent of just complete, like preventing blockchains from existing, but they definitely have the ability to really marginalize it, right? Like if you just ban all exchanges, like, and ban all links from the fiat s- ecosystem to crypto, and, you know, you ban all the kind of mainstream employers from, uh, accepting or paying in cryptocurrency, then like, you could s- you can successfully ad- like, turn it into a, yeah, like, you know, a fairly kind of niche counter-cultural thing that has much less impact than it otherwise would. So it's somewhere between the good scenario and the bad scenario. I'm obviously hoping for the good.

   13. LFLex Fridman22:12

       Hmm. Well that's interesting also, the tension between governments and, uh, companies.

   14. VBVitalik Buterin22:17

       Mm-hmm.

   15. LFLex Fridman22:17

       Like if you have a bunch of billionaires, or a bunch of companies like Tesla investing in Bitcoin, and then governments resisting that-

   16. VBVitalik Buterin22:24

       Mm-hmm.

   17. LFLex Fridman22:24

       ... it's interesting who wins out in that worst case scenario.

   18. VBVitalik Buterin22:27

       Hmm.

   19. LFLex Fridman22:27

       And then a- almost when companies and, uh, rich, quote-unquote, respectable people embrace, uh, cryptocurrencies, Bitcoin, Ethereum, so on, even the dog coins, uh, it's almost sends a signal to everybody else that this is- this is a revolution that's here to stay.

   20. VBVitalik Buterin22:47

       Mm-hmm.

4. 22:48 – 27:54

   Crime

   1. VBVitalik Buterin22:48

   2. LFLex Fridman22:49

      On this one little tangent that you brought up, this is almost an outdated idea, but it's still with us, which is cryptocurrencies are used for illegal activity. For drugs, for crime, and so on. Is there some sense that worries you that if, uh, if cryptocurrency, if Ethereum runs the world, then crime, making money from crime will be easier?

   3. VBVitalik Buterin23:17

      There's always that possibility, but like at the same time I think if you look at, you know, the world as a whole and, like, the way all the other technological trends are going, like, you know, in-person surveillance is just going up every year, right?

   4. LFLex Fridman23:30

      Yeah.

   5. VBVitalik Buterin23:30

      Like, the, if you commit a crime in, you know, meat space it's getting harder and harder to get away with it. Uh, so, like, you know, if you wants to do something... And, and this is something that's just, like, happening as a result of, you know, just better technology information- uh, information transparency, like, a lot of it's hard to prevent even if you really tried. Um, so, I- the world where, like, things go dark to such an ex-, um, you know, as the- the one f- the police hawks sometimes like to say, um, to such an extent that like, you know, "Oh my God, the cr- the criminals are committing crimes with impunity and we can't, uh, see anything," like that just seems unlikely. Um, but, you know, on the other hand like, uh, the world, uh, where there just, you know, is no privacy for example or, um, the world where there just like is no ab- no ability to, uh, kind of act outside of the- the confines of, uh, you know, mainstream institutions, like that's, uh, some- m- that's something that's more realistic and that seems like something that, uh...... could lead to a lot of, uh, kind of a lot of scary things, right? And, like, even from a government's point of view, right? Like, I think, uh, governments over the last few years, a lot of them, they're very worried about sovereignty, you know? They're worried about, like, if their, um, country's economy is in, you know... Social environments are just completely dependent on basically foreign tech companies controlled by foreign governments. Like, you know, governments are not on team government, right? It's like, you know, the, uh, Indian government is on, you know, team India, you know, the Russian government is on team Russia and so forth, right? So, like, you know, they don't want the US to be able to, like, have this big backdoor into everything. Uh, so, I mean, I do think that a balance is needed but a- and at the same time, I, uh, do think, um, the... I guess, I, I definitely, like, worry more about the, the si- the possibility that just, like, without things like crypto, uh, kind of acting outside of institutions becomes too imposs- uh, I- and, and I don't even necessarily mean outside of governments, even just, you know, outside of corporations, like, becomes too impossible and there's just, like, terrible things that come as a result. Um, and if things going in the other direction, like, I mean, it obviously is a r- uh, a risk, but, um, at the same time, I think in the long term, like, crypto can potentially even, like, offer d- defenses as much as attacks against, that sort of thing.

   6. LFLex Fridman26:03

      Yeah. Many... Throughout history, many of the most destructive things came from centralized institutions versus, uh, sort of from the people operating in the shadows. And, you know, I've been talking to a bunch of psychedelics folks, the people doing... Researchers like Greg Doblin, uh, in, uh, Johns Hopkins. There's a lot of exciting research on psychedelics.

   7. VBVitalik Buterin26:23

      Mm-hmm.

   8. LFLex Fridman26:23

      And one thing you could say about operating at the edge of legality, it could actually accelerate the adoption of particular things like... Whether it's, uh, marijuana or psychedelics, they, they can help people out. It almost accelerates the policy. It forces the policy to catch up to where the people stand.

   9. VBVitalik Buterin26:44

      Right.

   10. LFLex Fridman26:44

       So there's a positive way of doing things that are in the gray area of legality-

   11. VBVitalik Buterin26:49

       Mm-hmm.

   12. LFLex Fridman26:49

       ... and creating a market that allows people to, to, uh, in a safe way, be able to participate in this gray area of legality.

   13. VBVitalik Buterin26:56

       Yeah, I mean, the other thing to keep in mind, of course, is that the, the set of, like, the kinds of things that just, like, payment processors as companies try to restrict people or you from is much larger than the set of things that's illegal, right?

   14. LFLex Fridman27:08

       Right.

   15. VBVitalik Buterin27:08

       Like, part of that is because they want to be super conservative and, like, the more layers you have, the more they're, like, cons- conservative because they're scared of what, what the, what the layer below them will do to them. Um, sometimes they have their own, you know, moral opinions of various kinds. And, like, you know, they go after lots of people, right? Like, they make life really hard for, you know, like sex workers, for example, and, like, uh, you know, psychedelics as you mentioned. There's, uh, a l- like, a lot of activity even including stuff that is totally legal that just, you know... There's this, like, you know, shadow, like, PayPal, credit card, governments or whatever you want to call it and ... And that makes it just hard to participate in this stuff. So I think, like, reducing the number of intermediaries is definitely normally a good thing.

5. 27:54 – 40:44

   Proof of stake vs proof of work

   1. VBVitalik Buterin27:54

   2. LFLex Fridman27:54

      All right. Let's talk about one of the most exciting, uh, technologies, like, technically, philosophically, like, socially, financially, in every way, which is Ethereum 2.0.

   3. VBVitalik Buterin28:07

      Hmm.

   4. LFLex Fridman28:08

      (exhales) There's a million things to talk about. But at, uh, step one, it's probably a good thing to do which is can you briefly summarize your vision-

   5. VBVitalik Buterin28:17

      Mm-hmm.

   6. LFLex Fridman28:17

      ... how Ethereum 2.0 will make Ethereum more scalable, secure and sustainable?

   7. VBVitalik Buterin28:23

      Sure. Uh, so I think recently, we've actually been, uh, kind of de-emphasizing the ETH 2.0 branding, I guess.

   8. LFLex Fridman28:30

      Mm-hmm.

   9. VBVitalik Buterin28:30

      Uh, so the reason behind that was that, like, originally, we envisioned something more like a big grand event (laughs) where, you know, all the good things would happen at the same time-

   10. LFLex Fridman28:39

       Yeah.

   11. VBVitalik Buterin28:39

       ... and it would be a new blockchain, you know, would be a new protocol, and people would have to take a lot of effort to migrate over. But later, we've, uh, slowly changed the roadmap over to something that's much more incremental. Um, right? So, you know, proof of stake happens kind of over time, and then sharding gets added over time, and all these features get added over time. And so the experience for just a regular Ethereum user still feels very seamless, right? It's, like, maybe a little bit more complex than the hard forks that we've already did, uh, done, but... From a user's point of view, but, like, not by that much, right? Uh, so, uh, the big two things that are happening, right? These are what used to be considered the two flagship features of ETH 2.0 and now they're just, you know, the flagship features of the, you know, the next, uh, evolution of Ethereum-

   12. LFLex Fridman29:27

       Yes.

   13. VBVitalik Buterin29:27

       ... yeah, is, uh, proof of stake and sharding. So proof of stake is a consensus algorithm. It's, uh, the... Or consensus mechanism, I should say. Um, it's... The difference is that, like, an algorithm is something that you run by yourself. A mechanism is, like... It invo- like, interactions between people, and it could even include incentives and all of that. Uh, so a consensus mechanism, uh, s- so by which nodes in, uh, the network agree on, you know, which blocks came in, which transactions came in in what order, uh, makes sure that once a block gets accepted, it can't get reverted and all of these, uh, things that we expect from a blockchain. Um, so existing blockchains, you know, including Bitcoin, including the Ethereum of today, and including a lot of them, they use proof of work, right? Uh, so-The reason why we need proof of anything is bec- is, is because, like, they serve this function that I call kind of economic, uh, Sybil resistance. Uh, so that, that's obviously, you know, a big word for s- uh, especially if you've never heard of Sybils before. But, like, the basic idea is, right? That you have a network and you have lots of computers that agree on, like, which block to accept.

   14. LFLex Fridman30:36

       Mm-hmm.

   15. VBVitalik Buterin30:36

       And sometimes you get, you know, two blocks that get published at the same time and you just have to agree on an order. So there has to be some kind of voting game. You know, but then the question is, well, in this voting game, you know, who get, who gets to vote? Who gets to participate? Now, the pro- you can't say one person, one vote, right? The reason why you cannot say one person, one vote is because you need some kind of, like, authority or some kind of mechanism to say, you know, who the u- the humans are. Like, and if you don't have that, then a bad guy could just come in with a virtual machine or with a computer that has on it 10 billion virtual machines that have 10 billion, you know, virtual nodes and then just, like, say, "Look, I'm 99% of the network. I should control everything."

   16. LFLex Fridman31:15

       Mm-hmm.

   17. VBVitalik Buterin31:15

       Uh, so to prevent this, what proof of work and proof of stake both do is they basically say, well, the weight of your vote, like how much influence your, um, votes have in the consensus is proportional to, like, what quantity of economic resources you bring in. So in the case of proof of work, you prove what economic resources you have because your economic resources are computers and you prove that you have them by just running them 24/7 using these hash algorithms, right? So this does solve the problem, right? Because in order to attack the network, you have to come in with more computers or, and like more money invested into computers and electricity than the rest of the network puts together and that's extremely expensive. In proof of stake, instead of relying on, uh, people with computers that are just constantly cranking out hashes 24/7, you b- as your, like, unit of economic resources, you just use, like, holdings of coins inside the system, right? So all of these blockchains they have some kind of coin in them. Bitcoin has bitcoin, Ethereum has Ether, um, you know, they all have a coin, so why not just use that as the economic re- uh, the economic resource that you're using to, like, measure participation. Um, so that's, like, the core, uh, distinction between proof of work and proof of stake. Um, I like proof of stake and I've liked proof of stake for many years basically because, like, it just requires much less ongoing resource consumption, right? Like with proof of work, um, you know, you have to like actually go and buy these physical computers and these days, um, you know, they have specialized hardware, ASICs, um, application-specific integrated circuits. You have to go produce them and you have to go buy them and unless you have millions of dollars, you know, you have to buy them from one of these other people who creates them and those other people often end up taking a huge cut of the profits themselves. Uh, and then, you know, you have to plug them in, you have to just, um, sp- burn all of this electricity that's just, um, running 24/7. So it consumes a huge amount of energy, right? And it cons- and not just energy, it also, you know, just to create the hardware, right? Like people focus a lot on energy but, like, actually about half the cost of proof of work mining is the cost of the hardware. Um, so hardware is a very big deal too. Um, and, you know, you need this, like, these, this really big and powerful, like, very specialized hardware, you know, the kind that fills up these big warehouses. So proof of stake you don't re- you don't really need that much electricity you just need just a little bit to run a re- to run a regular computer. Um, you can run proof of stake validators on computers that you already have. Um, so it's just much less, um, resource-intensive. And, like, this is good for a few reasons, right? Like one is, you know, the kind of environmental rationale that, you know, you're not breaking the environment. Um, the second is that you're not taking away electricity and, like, other resources from other people. Right, like right now there's... I think just today I saw a story about, like, Iran wanting to shut down some bitcoin mining because it was just grabbing up so much electricity that it wa- you know, outbidding the nearby towns and they just d- didn't have enough. Um, and then there was a, like, Chia, the v- the one that's doing proof of, uh, like hard disk mining basically is just, like, grabbing up so many hard disks that there is a s- there is a shortage. Right, so that's the second reason. And then the third more selfish reason is that because participating in consensus does not require so much energy expenditure you don't need to pay people as much to participate, right? So, like, bitcoin and Ethereum they both issue somewhere around 4% of the total supply every year right now to miners. So Ethereum is about 4.7 million Ether and the current supply is about 115 million but with proof of stake, like, we expect it'll be somewhere between 500,000 and one, and one million per year. Um, so, uh, so that means, you know, the s- the supply doesn't have to in- increase so quickly. Um, so-

   18. LFLex Fridman35:07

       One of the pros that, uh...

   19. VBVitalik Buterin35:10

       Mm-hmm.

   20. LFLex Fridman35:10

       ... that people sort of argue for the proof of work-

   21. VBVitalik Buterin35:13

       Mm-hmm.

   22. LFLex Fridman35:13

       ... is that, uh, it is secure because it's much more difficult to sort of...

   23. VBVitalik Buterin35:17

       Hm.

   24. LFLex Fridman35:17

       As you've highlighted, it's difficult to participate. Is there, um, is... Wh- what are your thoughts about the security...

   25. VBVitalik Buterin35:24

       Mm-hmm.

   26. LFLex Fridman35:25

       ... of the proof of stake mechanism?

   27. VBVitalik Buterin35:28

       Yeah.

   28. LFLex Fridman35:28

       Is, is there ways to make it secure?

   29. VBVitalik Buterin35:30

       So I think proof of stake is very secure, uh, because in order to be able to attack the system you needs to have, like, basically as much stake as, uh, the rest of the network, right? So that mean, like, right now for example we have five million ETH staking so you have to come up with five million ETH and then join the network.

   30. LFLex Fridman35:47

       Mm-hmm.
6. 40:44 – 46:20

   Miner extractable value

   1. VBVitalik Buterin40:44

   2. LFLex Fridman40:44

      Some people describe MEV-

   3. VBVitalik Buterin40:47

      Ah.

   4. LFLex Fridman40:47

      ... miner extractable value as an existential risk to Ethereum.

   5. VBVitalik Buterin40:50

      Hmm.

   6. LFLex Fridman40:51

      What is MEV? How important is it to solve MEV? If it's important, what ideas do you have?

   7. VBVitalik Buterin40:57

      Sure. Um, how about after this one we'll also talk about sharding, 'cause that's-

   8. LFLex Fridman41:00

      Yes.

   9. VBVitalik Buterin41:00

      ... amazing, and it's part of YouTube too.

   10. LFLex Fridman41:01

       Yes, we will turn back to sharding and we'll-

   11. VBVitalik Buterin41:03

       Excellent.

   12. LFLex Fridman41:03

       ... which is-

   13. VBVitalik Buterin41:04

       No, no-

   14. LFLex Fridman41:04

       ... we'll return to the big picture of the scaling problem, as you mentioned.

   15. VBVitalik Buterin41:08

       I love, I love this conversation. You know, depth-first search instead of breadth-first (laughs) .

   16. LFLex Fridman41:12

       (laughs)

   17. VBVitalik Buterin41:12

       Um, so, uh, basically, uh, okay. MEV, miner extractable value, um, it is not different in proof-of-work and proof-of-stake, right? So, like, if you want to call it, you know, block proposer extractable value, like, it sounds a lot sexier, but, you know, we can call it BPEV instead of MEV. Who cares? Um, but the base-

   18. LFLex Fridman41:29

       So this is a problem in both proof-of-work and proof-of-stake?

   19. VBVitalik Buterin41:32

       Yes. So the basic idea is, um, that if you have the ability to choose which transactions go into a block and in what order, then you have the ability to, like, take advantage of that position for economic gain in a lot more ways than just collecting transaction fees, right?

   20. LFLex Fridman41:49

       Mm-hmm.

   21. VBVitalik Buterin41:50

       Like, for example, there's decentralized exchanges on chain, like Uniswap. And, like, let's say the price of ETH to, uh, versus USDC was 2,700 the previous block, but then there was a bit of a market drop and now it's 2,680. Well, you can go on Uniswap and you can just, like, gobble up the entire part of, um, you know, the automated mar- um, order book that's, like, between 2,700 and 2,680, right? And that's... And then at the same time you, like, run a bot, and, uh, you know, you buy some ETH back at 2,680, and you've just, like, made about $10 of profit, right? So... Or, well, $10 times, you know, whatever the depth is, right? So an- so there's lots of, um, little things like that. There's also things, um, that involve, like, front-running other people's transactions. So one example of this would be that if someone sends a transaction that says, um, like, I don't know, "Buy me five ETH for, um, we- we'll g-"... whatever price that you can get, um, then y- but with a maximum of, uh, let's say, yeah, uh, uh, $15,000, then you can go and, like, you can stand each, put a transaction right in front of that transaction. And you can, like, buy up that ETH first-

   22. LFLex Fridman42:57

       Oh.

   23. VBVitalik Buterin42:57

       ... and then you resell it to him at, you know, $15,000 minus one. Um, so there's-

   24. LFLex Fridman43:02

       And then you get to make a little bit of money that way.

   25. VBVitalik Buterin43:03

       Exactly, so there's a lot of these different, like, arbitrage, front-running, back-running, these different tricks that allow block proposers to-

   26. LFLex Fridman43:11

       To get some percentage on top, like overhead.

   27. VBVitalik Buterin43:13

       Exactly.

   28. LFLex Fridman43:14

       Okay. So-

   29. VBVitalik Buterin43:14

       Um, and the reason why this is, um, a, a challenge is because, um, it's... I mean, like, first of all it some- it sometimes degrades, uh, user experience because users get, you know, less favorable, uh, trades. But there are sometimes ways to, like, mitigate that for applications, sometimes it's not that bad. But, like, the bigger risk that I think some people consider more existential is that there's just much more economies of scale in figuring out how to extract all this revenue. I mean, because if you're just collecting transaction fees, there aren't really economies of scale, there aren't really benefits to centralizing, right? Because it's a very simple formula, you just, like, grab up the transactions that pay you the most. But with MEV, you know, you ha- there's all these sophisticated algorithms and if you have lots of money then you can hire really smart people to make amazing algorithms, and then you can use the other half of your money to get a lot of mining power or a lot of stake, and you get a lot of opportunities to use your even better algorithms. So, there is this risk that, like, as a result of this, mining is basically... or proof, or even validating proof-of-stake is going to centralize.

   30. LFLex Fridman44:19

       Mm-hmm.
7. 46:20 – 47:43

   Scaling

   1. VBVitalik Buterin46:20

   2. LFLex Fridman46:20

      Okay, let's talk about the other really, really fascinating part of-

   3. VBVitalik Buterin46:23

      Mm-hmm.

   4. LFLex Fridman46:25

      ... uh, the future of Ethereum.

   5. VBVitalik Buterin46:26

      Mm-hmm.

   6. LFLex Fridman46:26

      Let's not call it Ethereum 2.0, but the future of Ethereum-

   7. VBVitalik Buterin46:30

      Mm-hmm.

   8. LFLex Fridman46:30

      ... that also may require a hard fork? I don't know, you can correct me on this. Is... well, broadly-

   9. VBVitalik Buterin46:37

      Hmm.

   10. LFLex Fridman46:37

       ... ideas for scaling?

   11. VBVitalik Buterin46:39

       Yes.

   12. LFLex Fridman46:40

       And more specifically, sort of, uh, layer two or, uh-

   13. VBVitalik Buterin46:45

       Hmm.

   14. LFLex Fridman46:45

       ... layer one and two intersection ideas of how to achieve scaling. And at the core of that is the idea of sharding. So first, what is sharding?

   15. VBVitalik Buterin46:55

       Okay. Uh, so there's two major paradigms for scaling blockchains, right, as, uh, you said, layer one and layer two. And layer one basically means make the blockchain itself, like, uh, capable of, uh, processing more transactions by having, you know, some mechanism by which it can do that despite the fact that there's a limit to the capacity of each participant in the blockchain. And then layer two says, "Well, we're gonna keep the blockchain as is, but we're gonna create clever protocols that sit on top of the blockchain, that still use the blockchain, and then still kind of inherit things like the security guarantees of a blockchain, but at the same time, a lot of things are done off-chain, and so you get more scalability that way." Um, so in Ethereum, the most popular paradigm for layer two is rollups, and the most popular paradigm for layer one is sharding.

8. 47:43 – 53:51

   Bitcoin blocksize wars

   1. VBVitalik Buterin47:43

      Mm-hmm.

   2. LFLex Fridman47:43

      So one way to achieve layer one scaling is to increase the block size.

   3. VBVitalik Buterin47:48

      Yes.

   4. LFLex Fridman47:48

      Hence the block size wars, quote, unquote.

   5. VBVitalik Buterin47:51

      Mm-hmm.

   6. LFLex Fridman47:51

      And, uh, you actually tweeted something about, uh-

   7. VBVitalik Buterin47:55

      Mm-hmm.

   8. LFLex Fridman47:55

      ... people are saying that Vitalik changed his mind about the, in, uh-

   9. VBVitalik Buterin47:59

      Mm-hmm.

   10. LFLex Fridman47:59

       He be- he went from being a s- sm- small blocker to-

   11. VBVitalik Buterin48:02

       Uh, went from being big to small.

   12. LFLex Fridman48:03

       Is it big to small?

   13. VBVitalik Buterin48:04

       Or, or one of them.

   14. LFLex Fridman48:05

       And, uh, but you said, "I've been a medium-"

   15. VBVitalik Buterin48:07

       Mm-hmm.

   16. LFLex Fridman48:08

       "... blocker all along." So maybe you can also comment on (laughs) on where... on the very basic aspect, before we even get to sharding-

   17. VBVitalik Buterin48:14

       Sure.

   18. LFLex Fridman48:14

       ... of where you stand on this block size debate.

   19. VBVitalik Buterin48:17

       Sure. So the way that I think about the trade-off is I think about it as a trade-off between making it easy to write to the blockchain and making it easy to read the blockchain. Right? So when I say read, I just mean, you know, have a node and actually verify it and make sure that it's correct and all of those things. And then by write I mean send transactions. So, like, I think for decentralization it's v- it's important for both of these tasks to be accessible, and I think that they're, like, about equally important, right? If you have a chain that's too expensive to read then everyone will just trust a few people to, like, read for them, and then those people can change the rules without anyone else's permission. But if, on the other hand, it becomes really expensive to write, then everyone will move on to s- like, basically second layer systems that are incredibly centralized, and, like, that takes away from, you know, decentralization and self-sovereignty as well. So this has been my viewpoint s- like pretty much the whole time, right? It's that like, you know, you need this balance and going in one direction or the other direction is very unhealthy. In the Bitcoin case, um, basically what happened was that...... Bitcoin originally, like, at the very beginning, it didn't really have a block size. It just had an accidental block size of 32 meg... Or, or... A block size limit of 32 megabytes because that just happens to be the limit of the, the peer-to-peer messages. Um, but then-

   20. LFLex Fridman49:31

       Oh, interesting. I didn't even know that part. (laughs)

   21. VBVitalik Buterin49:33

       Yeah. But then-

   22. LFLex Fridman49:34

       That's interesting.

   23. VBVitalik Buterin49:34

       ... um, Satoshi, back in 2010 was worried that even 32-megabyte blocks would be too hard to process, so he, uh, put the limit down to one megabyte and, you know, I think the, uh-

   24. LFLex Fridman49:44

       By put, you mean sneaked in there?

   25. VBVitalik Buterin49:47

       Yeah, just like made an update to the Bitcoin software that made blocks bigger than one, uh... I think it's a million bytes, um, invalid. And I think the impression that most people had at the time is that, you know, this is just a temporary safety measure and over time, you know, they'll... As we become more confident in the software, that limit would be, uh, like raised some, uh, s- s- somewhat. Um, but back then when the, uh, actual usage of, uh, the blockchain started going up and then it started going up first to 100 kilobytes per block, then to 250 kilobytes per block, then to 500 kilobytes per block, um, you know, there started a kind of coming out of the, the woodworks this opinion that, like, "No, that limit should just not be increased." Um, and, you know ha- then there were all of these attempts at compromising, right? Um, th- You know, first there was, like, a proposal for 20-megabyte blocks, then there was the 248 proposal, which is, um, a bit ironic because the 248 proposal started off being a, like a small block negotiating position.

   26. LFLex Fridman50:49

       Mm-hmm.

   27. VBVitalik Buterin50:49

       But then when the big block people came back and said, like, "Hey, we're... Aren't we, aren't we gonna do this?" They were like, "Oh, no, no, no, no. We don't want 'em. We don't want the block size increases anymore." Uh, so, you know, there were these two different positions, right? The small blockers, I think they valued one megabyte blocks for two reasons. One is that they just, like, really, really believe in the importance of, uh, being able to read the chain, but two is that a lot of them really believe in, in maintaining this norm of never hard forking, right?

   28. LFLex Fridman51:18

       Right.

   29. VBVitalik Buterin51:18

       So, the difference between a hard fork and a soft fork is basically that in a soft fork, um, blocks that were v- th- Any block that's valid under the new rules was still valid under the old rules. So, if you have a client that verifies according to the old rules, then you'll still be able to accept the chain, uh, that follows the new rules. Whereas with a hard fork, like, you have to update your code in order to stay on the chain.

   30. LFLex Fridman51:42

       Mm-hmm.
9. 53:51 – 57:34

   Hard fork vs soft fork

   1. LFLex Fridman53:51

   2. VBVitalik Buterin53:51

      Um, I'm pro-hard fork. I think hard forks are actually, like, in a, uh, you know, political economic sense, they're better than soft forks. Uh-

   3. LFLex Fridman53:59

      Well, let's... Okay, okay. I think that's a beautiful-

   4. VBVitalik Buterin54:02

      (laughs)

   5. LFLex Fridman54:03

      ... principle as stated-

   6. VBVitalik Buterin54:05

      Mm-hmm.

   7. LFLex Fridman54:05

      ... that soft forks may be more coers- coercive than hard forks.

   8. VBVitalik Buterin54:09

      Mm-hmm.

   9. LFLex Fridman54:10

      This, this is not just about cryptocurrency, this is about-

   10. VBVitalik Buterin54:14

       Mm-hmm.

   11. LFLex Fridman54:14

       ... politics and life.

   12. VBVitalik Buterin54:16

       Mm-hmm. Mm-hmm.

   13. LFLex Fridman54:16

       That's fascinating.

   14. VBVitalik Buterin54:17

       Mm-hmm.

   15. LFLex Fridman54:18

       So, you're okay with hard forks?

   16. VBVitalik Buterin54:20

       Yes.

   17. LFLex Fridman54:20

       In fact, you think hard forks is the right way to make changes-

   18. VBVitalik Buterin54:24

       Mm-hmm.

   19. LFLex Fridman54:24

       ... because then everybody's forced to make a decision.

   20. VBVitalik Buterin54:27

       Right.

   21. LFLex Fridman54:27

       Do you accept this change or not?

   22. VBVitalik Buterin54:29

       Mm-hmm.

   23. LFLex Fridman54:29

       As opposed to ideas being sneaked in behind the door and you're... Uh, and that decision-

   24. VBVitalik Buterin54:34

       Mm-hmm.

   25. LFLex Fridman54:34

       ... is forced on you.

   26. VBVitalik Buterin54:34

       Exactly. Yeah.

   27. LFLex Fridman54:36

       Okay, so but, you know, hard forks, some people say... This is when they talk about sort of Ethereum.

   28. VBVitalik Buterin54:41

       Mm-hmm.

   29. LFLex Fridman54:42

       Is there's just some aspect to a hard fork where you're trying to upgrade a... What is it? Airplane while it's flying and, uh-

   30. VBVitalik Buterin54:50

       I think soft forks, they're also upgrading an airplane while it's flying.
10. 57:34 – 1:04:18

    Craig Wright

    1. VBVitalik Buterin57:34

       Like, um, first, you know, there was the split with Bitcoin Cash, and then, of course, Craig Wright came in. And, you know, Craig Wright was a, this, uh, basically scammer who just keeps on pretending that he is Satoshi Nakamoto, the inventor of, uh, Bitcoin. Hey, Craig Wright's legal team, do you hear me? Yes, I still think your client is a scammer, so sue me.

    2. LFLex Fridman57:53

       This is definitely gonna be depth-first search-

    3. VBVitalik Buterin57:55

       (laughs)

    4. LFLex Fridman57:55

       ... 'cause I gotta ask you about Craig.

    5. VBVitalik Buterin57:56

       (laughs)

    6. LFLex Fridman57:57

       Uh, 'cause his people have been contacting me, and I'm trying to figure out, like, what is up with this human being. So for people who don't know, there's somebody who is... (laughs)

    7. VBVitalik Buterin58:07

       (laughs)

    8. LFLex Fridman58:07

       Let's start. There's Satoshi Nakamoto, who is the creator of Bitcoin, who's anonymous. And actually, most really big people in the cryptocurrency space d- do not, like, like yourself and others, do not dare claim that they are, even for fun, Satoshi Nakamoto. In fact, if Satoshi Nakamoto is still alive and is... Like, if, say, you were Satoshi Nakamoto, it seems like the thing he would do is probably, or she, is, uh, m- try to remain anonymous. On the flip side of that, there's a guy named Craig Wright-

    9. VBVitalik Buterin58:39

       Hmm.

    10. LFLex Fridman58:39

        ... who continually keeps claiming that he is, in fact, Satoshi Nakamoto and keeps suing a lot of people.

    11. VBVitalik Buterin58:45

        (laughs)

    12. LFLex Fridman58:46

        So, uh, on, on him, if we could just linger on him, what do you make of this character? Uh, is, uh, th- What, what are we supposed-

    13. VBVitalik Buterin58:53

        Mm-hmm.

    14. LFLex Fridman58:53

        ... to make of this character? Should he be ignored? Is there any possible truth to his claims? Um, what do you make of him?

    15. VBVitalik Buterin59:01

        The, the analogy that's at the s- uh, at the top of my head will get a bit political, but, um-

    16. LFLex Fridman59:05

        Oh, boy.

    17. VBVitalik Buterin59:05

        ... that's fine. You've had Michael Malice. Um...

    18. LFLex Fridman59:07

        (laughs)

    19. VBVitalik Buterin59:07

        So (laughs) , um, I guess I view Craig Wright as being kind of like a Donald Trump figure.

    20. LFLex Fridman59:12

        Yes.

    21. VBVitalik Buterin59:12

        In that, like, he's not very intellectual, um, but I think he gets a big audience because he says... He, he says things that, like, play to the resentments that people have, and he says things that, uh, people wants to hear, right? Like, in the, in the wake of this blocksize war, you know, the big blockers did feel very disenchanted. Like, they felt that, you know, Bitcoin always had this vision that we were supposed to just keep increasing the block size, and Bitcoin is peer-to-peer cash. It says so in the white paper. And then this gr- this elitist clique of core devs just, like, came in and said, you know, "No, no, no. We're gonna impose this totally different vision. And if you ever want your scalability, you'll have to wait for us to create this, this totally unproven fancy technology called the Lightning Network that works under completely different principles." And, you know, they were very angry at this. And I mean, I think, like, I think a lot of that anger is justified. Um, but at the s- same time, w- you know, when people are in that mental state, like, it's very easy for you to just kind of, like, latch on. And if you find someone who expresses anger at the same things that you're angry at and also, like, seems like someone who's strong and seems like someone who, you know, might be good to rally around, it's very easy to just, like, get behind that.

    22. LFLex Fridman1:00:25

        But that extra part about where he's Satoshi Nakamoto, I don't understand why that's necessary.

    23. VBVitalik Buterin1:00:29

        Mm-hmm. I think that's, um... I mean, he could have done it without that, but that, I mean, that just... It's a marketing strategy.

    24. LFLex Fridman1:00:36

        Right.

    25. VBVitalik Buterin1:00:36

        Like, it sort of gives him more salience. Like, there's other big block personalities, right? Well, what's the difference between Cr- w- with Craig Wright? He's not just a bitcoin, uh, a big block personality. He's potentially Satoshi. Um, and-

    26. LFLex Fridman1:00:49

        Right.

    27. VBVitalik Buterin1:00:49

        ... he did say all the big block things, right? Like, he talked about how, "Oh, the concept of a fee market is fundamentally, like, economically wrong, and it should be..."... it should be a free market and you should be able to have blocks as big as you want. Like, he repeated all the talking points. And so, a lot of people were kind of sucked into that, right? And, uh, so he unfortunately was able to basically dominate a big part of the Bitcoin Cash community for a long time. And then eventually if, of course, um, you know, more and more people started to catch on, um, he would just say technical things that are completely wrong, right? Like, one example of this that I, um, remember is that he mixed up the concept of 256 bits and 2 to the power of 256 bits.

    28. LFLex Fridman1:01:35

        Mm-hmm.

    29. VBVitalik Buterin1:01:35

        Right? Um, so, you know, the difference is l- it's like the difference between, you know, 80 and the concept of 80-digit numbers, right? Um, and because of this, like, he made this m- made this argument that said that Bitcoin, that Bitcoin's elliptic curve is friendly to cryptographic pairings. Like, you don't have to k- un- understand what that is, but if you wanna know, I have articles on both at vitalik.ca.

    30. LFLex Fridman1:01:58

        (laughs)
11. 1:04:18 – 1:11:07

    Scaling: Sharding

    1. LFLex Fridman1:04:18

       selves. Okay. So that's the level... that's the layer one-

    2. VBVitalik Buterin1:04:23

       Uh-huh.

    3. LFLex Fridman1:04:24

       ... uh, a- approach. The other layer one, eh, within Ethereum is the idea of sharding.

    4. VBVitalik Buterin1:04:29

       Yes.

    5. LFLex Fridman1:04:30

       What the heck is sharding?

    6. VBVitalik Buterin1:04:31

       Mm-hmm. Okay.

    7. LFLex Fridman1:04:32

       What does the future of sharding look like?

    8. VBVitalik Buterin1:04:33

       Right. So to summarize that big, uh, long tangent that we just, uh, went on-

    9. LFLex Fridman1:04:37

       It was a beautiful tangent, by the way.

    10. VBVitalik Buterin1:04:38

        It's a... Yeah. It's an a- it's an amazing tangent and I think-

    11. LFLex Fridman1:04:40

        Yeah.

    12. VBVitalik Buterin1:04:40

        ... like, crypto is just... Uh, one of the most underrated aspects of crypto is, I think, how you can, like, analyze the, you know, the sociology and the politics-

    13. LFLex Fridman1:04:49

        Yeah.

    14. VBVitalik Buterin1:04:49

        ... and the anthropology and the... Yeah. And I'm sure Dan Carlin would have fun exploring this space at some point, but, like, the core trade-off, right, is that if you scale blockchains the dumb way, just by increasing the parameters, then eventually you just make it harder and harder to participate as a node and you c- v- end up with a system where there's, like, 20 computers running the whole thing-

    15. LFLex Fridman1:05:07

        Yeah.

    16. VBVitalik Buterin1:05:07

        ... and it's just very centralized. Um, so sharding basically says, well, instead of just increasing the parameters, what we're going to do is we're going to change the blockchain architecture in such a way that each individual node in the blockchain only needs to store a small portion of the data, it only needs to process a small portion of the transactions. So, you can think about it as being, like, inspired by BitTorrent, right? Like, on BitTorrent, there's no such thing as a BitTorrent full node that has every movie, right? Uh, you know, the work is, like, split up among a huge number of computers and, uh, that makes sense. That's, uh, you know, the only sane way to scale a system like that. Um, and if they actually tried making a version bi- of BitTorrent that required full nodes to st- that, that store every movie, then, you know, it would have, like, zero censorship resistance and it would just, like, d- you know, be dead in an instant. Uh, so the challenge with taking that model and applying it to blockchains, right, is that blockchains aren't just about, like, spreading data around, they're about agreeing on exactly what data was spread around and ensuring that everything that you agree on actually is correct.

    17. LFLex Fridman1:06:12

        Mm-hmm.

    18. VBVitalik Buterin1:06:12

        And so you have this paradox where, let's say you want to have a system that supports 10,000 transactions a second, but each computer in the network can only personally verify 100 transactions a second. So, how can each computer get a guarantee about the other 9,900 without actually going and verifying them themselves?

    19. LFLex Fridman1:06:33

        Yep.

    20. VBVitalik Buterin1:06:33

        Um, and it turns out that there are some, um... like, a bundle of different tricks that can do that, right? So, like, one of them is, uh, just random sampling.So the idea behind random sampling is, like, let's say for simplicity this is a, a proof-of-stake chain, and you have 10,000 validators. Validators are like, you know, the stakers. And, like, for simplicity, we'll assume they all have the same number of coins, right? If someone has more coins, we'll just kind of split them up and pretend they're 10 stakers. Then you s-... You use, you'd use, like, some random shuffling, and you basically say, "These random 100 validators are assigned to validate this block. These random 100 validators are assigned to validate this block. These random 100 validators are assigned to validate this block." And so each individual computer only gets assigned to validate, like, a small piece. But then the way that the information about, like, what's valid gets passed around, right, is that when these 100 participants, um, validate a block, they all sign a message basically saying, like, "Yes, we agree that this block is valid." And then, like, they combine that signature into one, and then they broadcast that signature. And then everyone else, instead of verifying the blocks directly, just verifies that signature. Right? And so if I see the signature, I'm not directly convinced that that block is valid, but what I am convinced of is that out of this committee of, uh, or this randomly selected group of 100 validators, let's say at least 70 of them agree that this block is valid.

    21. LFLex Fridman1:07:59

        Mm-hmm.

    22. VBVitalik Buterin1:07:59

        And so if I trust that, you know, the majority of these, uh, participants are all honest, then because it's all randomly selected, you know, the attacker can't just, like, force themselves into one committee. And s- and so, you know, the attacker's going to be evenly s- uh, evenly spread out too. And so if, you know, the entire set of validators is mostly honest, every committee is going to be mostly honest. And so, like, bad blocks are not going to go through, right? So that's, like, one simple form of sharding. There's also other more clever things that you can do. So for example, there's this concept of, uh, zk-SNARKs, right, or called, uh, zero-knowledge proofs. So this is the idea that you can make a cryptographic proof that says, "I verified th- or I ran some complex computation on this piece of data, and I got this answer."

    23. LFLex Fridman1:08:43

        Mm-hmm.

    24. VBVitalik Buterin1:08:43

        And so if you make these kinds of proofs, then, like, if you see a zk-SNARK that says some block is valid, then you're convinced that that block is valid. A- and th- even if, you know, everyone in that committee is evil, like, they have no way of making a c- a, a valid proof for a bad block, right? Like, because the proof itself, like, i- it is a proof that you did the computation where that proof is much easier to verify than just running the computation yourself. And, you know, the, there's, uh, once again, you know, super awesome mathematical or cryptographic magic behind making zk-SNARKs work. Um, but-

    25. LFLex Fridman1:09:17

        So it g- it gives you a little bit of a leg up over the 51% honest, uh-

    26. VBVitalik Buterin1:09:22

        Exactly.

    27. LFLex Fridman1:09:22

        ... assumption. So it's that little hack that improves upon the random sampling thing.

    28. VBVitalik Buterin1:09:26

        Exactly. And, like, there's other hacks, right? Like, there is another hack called data availability sampling that allows you to make sure that the data in the blocks was actually published. Um, but, like, basically, like, if you stack a couple of these tricks on top of each other, you can create a system where, like, I, as an individual participant, can be convinced that everything that's going on in this distributed blockchain thing is correct without actually personally checking more than, like, a percent of it. So that's sharding.

    29. LFLex Fridman1:09:52

        That's sharding. But, but the... As I understand, and maybe correct me-

    30. VBVitalik Buterin1:09:56

        Mm-hmm.
12. 1:11:07 – 1:19:30

    Scaling: Rollups

    1. VBVitalik Buterin1:11:07

       about rollups.

    2. LFLex Fridman1:11:07

       What are rollups?

    3. VBVitalik Buterin1:11:09

       Okay.

    4. LFLex Fridman1:11:09

       Now we're moving into layer two ideas.

    5. VBVitalik Buterin1:11:11

       Yes. So the idea behind a rollup is basically that... So instead of, um, just publishing transactions directly on chain and-

    6. LFLex Fridman1:11:25

       Mm-hmm.

    7. VBVitalik Buterin1:11:25

       ... having everyone, you know, ch- do all of the checking of those transactions-

    8. LFLex Fridman1:11:29

       Mm-hmm.

    9. VBVitalik Buterin1:11:29

       ... um, what you do is you create a system where users send their transactions to some par- like, central party called an aggregator.

    10. LFLex Fridman1:11:38

        Mm-hmm.

    11. VBVitalik Buterin1:11:38

        And, like, well, theoretically, you could have a system where, like, the aggregator switches around or anyone can be an aggregator. So, you know, it, it's still, like, permissionless to send things. Um, then what the aggregator does is they strip out all of the transaction data that, like, is not relevant to helping people update the state. So when I say the state, this is like a, this is a very important kind of technical term for blockchains. I mean, like, account balances, code, um, mm, like, things that are, like, memory, internal memory of smart contracts, so, like, basically everything the blockchain ha- actually has to keep track of and remember. Right? So ju- you just put in a, um... You take all these transactions, strip out all the data that's not relevant to telling people how to update the state-

    12. LFLex Fridman1:12:24

        Mm-hmm.

    13. VBVitalik Buterin1:12:24

        ... and then you take the data that y- that's needed to update the state, and then you, like, really compress it, right? So, like, for example, if we say, you know, I, Vitalik, have an account that's 0XAB58 blah, blah, blah, blah, blah, and it's 20 bytes, well, instead, we can say, "Well, I have an account that is number 1874224 in the tree." Right?

    14. LFLex Fridman1:12:44

        Mm-hmm.

    15. VBVitalik Buterin1:12:44

        And that goes down from 20 bytes to just, like, a, an index and a position, which is three bytes, right? So you use all sorts of these fancy compression tricks, and you basically just...... instead of publishing all these transactions, you publish this, like, tiny compressed blob.

    16. LFLex Fridman1:12:58

        Mm-hmm.

    17. VBVitalik Buterin1:12:58

        Right? So the amount of data that goes on chain goes down by maybe about a factor of 10, right? And then the second thing is that you don't do the computation on chain. Instead, you do the computation off chain, and there's one of two ways to do this, right? One is called a ZK-rollup which is, you just provide a ZK-SNARK that basically says, "Hey, look, I did this computation and, uh, and, and I have this proof that here's the- here's the, you know, some hash of the result and it's correct." And then you stick it on chain and everyone verifies this one proof instead of verifying all these transactions. And then the other approach is called an optimistic rollup, which is basically d- made of this scheme where, like, first someone says, like, "Hey, this is what I think the result of the- of, uh, applying these, uh, transactions is." And then someone else can say, "I disagree, the result is different." And only if two people disagree do you actually do it on- uh, do you actually just, like, p- publish all of the data and run the whole- th- that- that whole block on chain. So if there's disagreements, then you just, like, run everything on chain, and whoever was wrong, like, loses a lot of money. Right? So, like, disagreements are very rare and they're very expensive. And in a ZK-rollup, you don't even rely on this, like, challenging ga- game at all. You just rely on a proof. So, you know, the core principle is basically that instead of lots of transactions and all the transa- everyone verifies every transaction, it is, you take the transactions, you strip a- uh, strip 'em down and compress them as much as possible, then stick that on the blockchain. You do need to stick something on the blockchain just so that everyone el- everyone else can, like, keep, uh, keep up to date with the state so they know, you know, what all the contracts are, what all the balances are in all of this, but it's a very small amount of data. And then you use some- one of these other off-chain games, you know, could be this, um, optimistic game, could be a ZK-SNARK, to just prove that somebody out there did the computation and the result is correct.

    18. LFLex Fridman1:14:44

        Mm-hmm.

    19. VBVitalik Buterin1:14:44

        Right? So you're pushing, like, 90% of the work off chain and then, you know, well, 90% of the data and 99% of the computation off chain, and then you still have 10% of the data and 1% of the computation on chain. And so, you know, your scalability goes up by a factor of about 100. So these systems are already alive for b- for some applications, right? So there's something called Loopring, which is just a- a- a ZK-rollup for payments, right? So you can have, you know, assets inside of a Z- uh, inside of the Loopring system, and you can go around and transfer them. But, uh, what you, um, and you get, like, much lower transaction fees, right? Like, instead of five dollars, you have to pay, like, less than five cents. Um, but the only problem is that this only supports a couple of applications right now. Like, making one that s- supports anything that you can do on Ethereum just takes a bit more work, but that's being done as well, right? So, like, within a few months, I'm expecting, you know, fully Ethereum, um, capable, uh, um, rollups to, um, be available as well.

    20. LFLex Fridman1:15:48

        The-

    21. VBVitalik Buterin1:15:48

        So then, yeah, so rollups, just summarizing, you know, do most of the work off chain, put only a little bit on chain, factor of 100 scaling, sharding, another factor of 100 scaling, 100 times 100, factor of 10,000, you know, hundreds of thousands of transactions a second, and, like, you know, there's your scalability.

    22. LFLex Fridman1:16:04

        Okay. So you achieve scalability, you can do a large number of transactions very quickly, and, uh, the cost of doing those transactions are much lower.

    23. VBVitalik Buterin1:16:11

        Mm-hmm.

    24. LFLex Fridman1:16:11

        You wrote that, uh, in the long term, ZK-rollups are going to win-

    25. VBVitalik Buterin1:16:16

        Mm-hmm.

    26. LFLex Fridman1:16:16

        ... in terms of Layer 2 technology.

    27. VBVitalik Buterin1:16:18

        Mm-hmm.

    28. LFLex Fridman1:16:18

        Specifically, you wrote, "In general, my own view is that, uh, in the short term, optimistic rollups," as you were saying-

Episode duration: 3:02:00