Vitalik Buterin: Ethereum 2.0 | Lex Fridman Podcast #188

Lex Fridman 0:00 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.

Lex Fridman 1:19 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?

Vitalik Buterin 2:26 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?"

Lex Fridman 3:12 Yeah.

Vitalik Buterin 3:12 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.

Lex Fridman 3:19 Yeah, yeah.

Vitalik Buterin 3:19 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.

Lex Fridman 6:33 Mm-hmm.

Vitalik Buterin 6:34 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-

Lex Fridman 8:00 So you were doing this all- all by yourself?

Vitalik Buterin 8:01 I-

Lex Fridman 8:02 Essentially.

Vitalik Buterin 8:03 Most of it by myself. So I need- I need-

Lex Fridman 8:04 'Cause you have to keep it secret.

Vitalik Buterin 8:05 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-

Lex Fridman 9:33 Okay.

Vitalik Buterin 9:33 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.

Lex Fridman 9:45 Sure.

Vitalik Buterin 9:45 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.

Lex Fridman 10:00 It's been a couple of weeks. First of all, thank you for, uh, helping me, uh, hang up some curtains. This is... (laughs)

Vitalik Buterin 10:06 (laughs) .

Lex Fridman 10:06 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?

Vitalik Buterin 10:19 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.

Lex Fridman 11:27 But psychologically, y- you mentioned stress.

Vitalik Buterin 11:30 Mm-hmm.

Lex Fridman 11:30 How hard was it?

Vitalik Buterin 11:32 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) .

Lex Fridman 13:07 (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?

Vitalik Buterin 13:23 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.

Lex Fridman 14:11 Mm-hmm.

Vitalik Buterin 14:11 And, like, uh, and I'm sure you can find it and throw it in the links. Um...

Lex Fridman 14:14 Yeah.

Vitalik Buterin 14:15 The... So, that was interesting to kind of see becoming real. And, like, in general, right, I think, you know, public goods are very important. And on the internet, public goods are m- even more important, right? Like, every single, like, Friedman podcast is just on YouTube and, you know, anyone can go and see it. Like, there's no way for you to, like, you know, sell it and, uh, so that some people can see it but then other people can't see it. Like, you know, you could do that, but then you, you'd obviously be, you know, reducing your impact. So thank you for making them, uh, uh, th- uh, the amazing Lex Fridman cu- podcast still freely available. (laughs)

Lex Fridman 14:48 Well, it... Th- that's actually a tense thing, is, uh, how do you do it in a way that's not, uh, controlled in a centralized, uh, fashion? 'Cause actually-

Vitalik Buterin 14:56 Exactly.

Lex Fridman 14:56 ... YouTube feels free and open, but it nevertheless is one company making centralized decisions.

Vitalik Buterin 15:01 Mm-hmm.

Lex Fridman 15:02 And the first time I realized YouTube was not forever is when a lot of the Joe Rogan Experience library was pulled from YouTube-

Vitalik Buterin 15:11 Hmm.

Lex Fridman 15:11 ... as part of the Spotify deal.

Vitalik Buterin 15:13 Mm-hmm.

Lex Fridman 15:13 And it made me realize we need to, um... It's like the realization that fiat money (laughs) is centralized.

Vitalik Buterin 15:20 Yeah.

Lex Fridman 15:21 Is, uh, realizing that, you know, th- they, they... Y- this is not forever, and you might want to come up with schemes to distribute it to, uh, decentralize th- the control of it in the way that audio for podcasts-

Vitalik Buterin 15:33 Mm-hmm.

Lex Fridman 15:33 ... is with just an RSS feed.

Vitalik Buterin 15:34 Exactly. No, and I think... One of the kind of philosophical things that I hope to achieve is kind of decouple the concept of, uh, public goods, which are incredibly important and are the lifeblood of mod- modern civilization, from the g- the idea that there, like, is, is or can be one central organization that represents the public and, like, perfectly under- uh, understands and can impose their idea of what is the good. Right? Like, it's... When people talk about public goods, like, it just often comes with this baggage of, uh, you know, either centralization or conformism.

Lex Fridman 16:07 Okay.

Vitalik Buterin 16:07 And I think, like, it doesn't have to, right? Like, uh, o- often the most important public goods are the ones that are created by, you know, the crazy individualists that disagree with everyone else. Uh, so trying to make this kind of synthesis where, you know, you combine the values of decentralization and the values of open source, but you're not naive about it and, like, you know, you realize, um, that for these things to be produced it ha- there, there needs to be a m- a way for it to be sustainable, there needs to be some way of supporting people who are working these projects. But at the same time you want to avoid that turning into a vector of centralization. Like, trying to sort of get all of the good things without the bad things, to me that's a, uh, a, a big part of, uh, sort of what my grand experiment in crypto is about, right? And, like, we are doing things in, uh, uh, different kinds of things for this, right? Like, there's the, the Gitcoin Grants quadratic funding in the Ethereum ecosystem, um, there's, you know, obviously these, uh, dog coins that just happened s- like, uh, I guess accidentally. Um, there's other projects, um, that... Like, for example, you know, Uniswap has, um, their Uniswap DAO that just has a huge amount of funding. And look, we haven't seen yet how that's going to be deployed, but, you know, it could be de- potentially deployed to do lots of really good and amazing things.

Lex Fridman 17:31 Do you see Ethereum as essentially, uh, a mechanism f- to, uh, fight for social causes?

Vitalik Buterin 17:40 Hmm. I definitely see Ethereum as, uh, b- being a, uh, mechanism to fight for... Definitely some sp- some specific things that are s- um, that are social causes. Um, like just, you know, the fact of creating an open financial system that anyone can participate in no matter where they are in the world, that's a social cause. Um, just, you know, giving people the ability to organize and create projects even if it's five people in five different countries, I think that kind of inclusiveness, I think that's a social cause and it's a core, uh, a core crypto value. Um, at... But then at the same time, like, the other important and part of the magic of Ethereum that you have to balance that against is that it is also this open platform where ultimately, you know, the thing that go, uh, the things that are on Ethereum is just the things that the community makes of it.

Lex Fridman 18:35 Well, you kind of briefly opened the door, so let's go there. (laughs) When it comes to, uh, government regulation of crypto-

Vitalik Buterin 18:43 Mm-hmm. Hmm.

Lex Fridman 18:44 ... uh, what's the best case scenario, what's the worst case scenario? In terms of, um, you know-

Vitalik Buterin 18:51 Hmm.

Lex Fridman 18:51 ... as you've kind of mentioned, Ethereum challenges the- the- the power centers of the world.

Vitalik Buterin 18:57 Mm-hmm.

Lex Fridman 18:58 And, uh, how do you see the interplay between gov- governments and this new technology that resists centralized power?

Vitalik Buterin 19:06 Mm-hmm.

Lex Fridman 19:06 Best case and worst case.

Vitalik Buterin 19:07 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.

Lex Fridman 19:31 Mm-hmm.

Vitalik Buterin 19:32 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.

Lex Fridman 22:12 Hmm. Well that's interesting also, the tension between governments and, uh, companies.

Vitalik Buterin 22:17 Mm-hmm.

Lex Fridman 22:17 Like if you have a bunch of billionaires, or a bunch of companies like Tesla investing in Bitcoin, and then governments resisting that-

Vitalik Buterin 22:24 Mm-hmm.

Lex Fridman 22:24 ... it's interesting who wins out in that worst case scenario.

Vitalik Buterin 22:27 Hmm.

Lex Fridman 22:27 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.

Vitalik Buterin 22:47 Mm-hmm.

Lex Fridman 22:49 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?

Vitalik Buterin 23:17 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?

Lex Fridman 23:30 Yeah.

Vitalik Buterin 23:30 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.

Lex Fridman 26:03 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.

Vitalik Buterin 26:23 Mm-hmm.

Lex Fridman 26:23 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.

Vitalik Buterin 26:44 Right.

Lex Fridman 26:44 So there's a positive way of doing things that are in the gray area of legality-

Vitalik Buterin 26:49 Mm-hmm.

Lex Fridman 26:49 ... and creating a market that allows people to, to, uh, in a safe way, be able to participate in this gray area of legality.

Vitalik Buterin 26:56 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?

Lex Fridman 27:08 Right.

Vitalik Buterin 27:08 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.

Lex Fridman 27:54 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.

Vitalik Buterin 28:07 Hmm.

Lex Fridman 28:08 (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-

Vitalik Buterin 28:17 Mm-hmm.

Lex Fridman 28:17 ... how Ethereum 2.0 will make Ethereum more scalable, secure and sustainable?

Vitalik Buterin 28:23 Sure. Uh, so I think recently, we've actually been, uh, kind of de-emphasizing the ETH 2.0 branding, I guess.

Lex Fridman 28:30 Mm-hmm.

Vitalik Buterin 28:30 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-

Lex Fridman 28:39 Yeah.

Vitalik Buterin 28:39 ... 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-

Lex Fridman 29:27 Yes.

Vitalik Buterin 29:27 ... 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.

Lex Fridman 30:36 Mm-hmm.

Vitalik Buterin 30:36 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."

Lex Fridman 31:15 Mm-hmm.

Vitalik Buterin 31:15 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-

Lex Fridman 35:07 One of the pros that, uh...

Vitalik Buterin 35:10 Mm-hmm.

Lex Fridman 35:10 ... that people sort of argue for the proof of work-

Vitalik Buterin 35:13 Mm-hmm.

Lex Fridman 35:13 ... is that, uh, it is secure because it's much more difficult to sort of...

Vitalik Buterin 35:17 Hm.

Lex Fridman 35:17 As you've highlighted, it's difficult to participate. Is there, um, is... Wh- what are your thoughts about the security...

Vitalik Buterin 35:24 Mm-hmm.

Lex Fridman 35:25 ... of the proof of stake mechanism?

Vitalik Buterin 35:28 Yeah.

Lex Fridman 35:28 Is, is there ways to make it secure?

Vitalik Buterin 35:30 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.

Lex Fridman 35:47 Mm-hmm.

Vitalik Buterin 35:47 And then-... the, the other b- so five billion Ether's a lot, right? It's, like, um, how much is it now? Like, $15 billion. So that's actually more than, I, I, I believe the cost of, um, attacking the Bitcoin network. And then the second thing is that recovering from attacks is much easier in proof-of-stake than in proof-of-work, right? Because in proof-of-stake you have... Like, first of all we ha- for many kinds of attacks that you do against this network, we have this concept of, like, automatic slashing, right? Which basically means that in order to, like, revert a finalized block, so if there was one block that's, like, accepted by the network, and you try to convince the network to a- to kind of revert that block and accept a different block, in order to make that kind of attack, you basically have to have your validators, like, a big portion of your validators sign two conflicting messages. And this is something that, like, once y- th- these messages are on the network, well, you can go and prove, like, "Look, these people did it." And so we have this feature in the protocol called slashing, where you basically take all these people who provably misbehaved and you burn their coins. Right? And you don't burn anyone else's coins. Now, there are other cases, like for example, if instead of reverting blocks the attacker just tries to censor everyone, right? Then what you d- everyone who got censored would just, like, basically create the minority chain, um, and then the community would basically have to do a soft fork, right? They would just have to say, like, "Look, this chain is clearly attacking us. This chain is the one not attacking us, and so we're gonna join this chain."

Lex Fridman 37:12 Mm-hmm.

Vitalik Buterin 37:12 And then what happens is that on that new chain, the attackers also lose a lot of coins, right?

Lex Fridman 37:17 Yeah.

Vitalik Buterin 37:17 So, the difference between proof-of-stake and proof-of-work is that in a proof-of-stake system, like, you can identify specific participants and you can say, you know, "These..." And, like, this isn't, like, you know, a human going in and saying, "I don't like you, I don't like you, I don't like you." This is, like, automated, right? You can g-

Lex Fridman 37:32 So the slashing process is automated?

Vitalik Buterin 37:34 Yes. Uh-

Lex Fridman 37:35 'Cause there are ways it can go wrong, so that's a painful process where the coins are burned.

Vitalik Buterin 37:40 (laughs) Um, it is painful, yes. I think, uh, I mean, the one big unknown, of course, is like if an attack actually happens. And, like, if an attack happens that requires the community to actually choose one of these minority forks, then, like, what would the c- the community actually successfully coordinating on this look like? Right? Like, it, it's, like, you know, we can talk about it and we can, you know, write, like, science fiction novels about it. But, like, until it's happened, you don't really know the details of, like, what it looks like and how difficult it is.

Lex Fridman 38:11 What are the channels of communication for the community? If you can enlighten me a little bit. Like, what-

Vitalik Buterin 38:16 Mm-hmm.

Lex Fridman 38:16 ... you know, uh-

Vitalik Buterin 38:17 Mm-hmm.

Lex Fridman 38:18 ... in many ways in the political realm-

Vitalik Buterin 38:19 Mm-hmm.

Lex Fridman 38:20 ... Twitter is often used as a way to kind of have these emergent phenomena of-

Vitalik Buterin 38:24 Mm-hmm.

Lex Fridman 38:24 ... large groups of people coming to a consensus-

Vitalik Buterin 38:26 Right.

Lex Fridman 38:26 ... about a particular idea.

Vitalik Buterin 38:28 Mm-hmm.

Lex Fridman 38:28 And then there's battle for consensus. What's, um-

Vitalik Buterin 38:31 Hmm.

Lex Fridman 38:31 ... in the Ethereum community-

Vitalik Buterin 38:33 Mm-hmm.

Lex Fridman 38:33 ... how do people... What are the sources of natural language-based communication that have an emergent belief structure that-

Vitalik Buterin 38:42 Hmm.

Lex Fridman 38:42 ... that you would say? Or is it all-

Vitalik Buterin 38:44 So-

Lex Fridman 38:44 ... through money? I- is it all through trading that the communication happens?

Vitalik Buterin 38:48 No, I think... There's definitely talking as well. Um, I mean, like, we have to agree on protocol changes somehow, right? Like, there's Twitter, there's Reddit, there's, um, GitHub, there's, uh, all of the various Ethereum forums, Ethereum Magicians, Ethereum Research. There's just in-person communication. Then there's just kind of, like, the hidden web of everyone talking to everyone on Telegram (laughs) -

Lex Fridman 39:09 Yeah (laughs) .

Vitalik Buterin 39:09 ... um, or Signal. Uh, so it's, like, some of everything, right? But I think, like, the thing to emphasize around, like, can you actually come to consensus on, you know, whether or not to fork the chain because the attacker is censoring some- e- everyone, just for example, is like, you, everyone who's running a node is going to see almost the same thing, right? Like, they're gonna be off by a few seconds and, like, maybe they'll be off by a few min- uh, they'll, they'll disagree by a few minutes. But, like, if it's a serious attack, you know, people are gonna know, right? It's not like one of those things where, you know, "Oh, it, we're trying to agree on, like, I don't know, did Epstein kill himself?" Or, like, some-

Lex Fridman 39:46 (laughs)

Vitalik Buterin 39:46 ... you know, bad rad-

Lex Fridman 39:47 Yeah.

Vitalik Buterin 39:47 ... political fact where, like-

Lex Fridman 39:48 Yeah.

Vitalik Buterin 39:48 ... in reality no one knows a single thing about what e- what's actually-

Lex Fridman 39:51 Yeah.

Vitalik Buterin 39:51 ... going on, and they're all speculating. Like, it, it is much more visible, right? So we do have that. But, you know, at the same time, I'm happy to admit that, like, these are fairly untested mechanisms.

Lex Fridman 40:01 Mm-hmm.

Vitalik Buterin 40:02 But, like, at the same time, they're also untested mechanisms in proof-of-work, right? And, like, in proof-of-work it's even harder, because in proof-of-work you don't have the ability to, like, identify and say, like, you know, "I'm going to... These miners attacked, and so we're not gonna let these mi- um, uh, um, these miners in. These miners did not attack, so we're gonna keep them in." Like, you have to pretty much, you know, either, um, take out none of the miners, or you do a fork that changes their proof-of-work algorithm which takes out all of the miners, right? So the e- uh, the economics of, like, recovering from attacks in proof-of-work, at least to me, actually, do seem, like, more unfavorable. But, you know, I'm sure the proof-of-work people you talk to will give, uh, very different and c- and contradictory opinions, and that's, uh, totally fine and amazing.

Lex Fridman 40:44 Some people describe MEV-

Vitalik Buterin 40:47 Ah.

Lex Fridman 40:47 ... miner extractable value as an existential risk to Ethereum.

Vitalik Buterin 40:50 Hmm.

Lex Fridman 40:51 What is MEV? How important is it to solve MEV? If it's important, what ideas do you have?

Vitalik Buterin 40:57 Sure. Um, how about after this one we'll also talk about sharding, 'cause that's-

Lex Fridman 41:00 Yes.

Vitalik Buterin 41:00 ... amazing, and it's part of YouTube too.

Lex Fridman 41:01 Yes, we will turn back to sharding and we'll-

Vitalik Buterin 41:03 Excellent.

Lex Fridman 41:03 ... which is-

Vitalik Buterin 41:04 No, no-

Lex Fridman 41:04 ... we'll return to the big picture of the scaling problem, as you mentioned.

Vitalik Buterin 41:08 I love, I love this conversation. You know, depth-first search instead of breadth-first (laughs) .

Lex Fridman 41:12 (laughs)

Vitalik Buterin 41:12 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-

Lex Fridman 41:29 So this is a problem in both proof-of-work and proof-of-stake?

Vitalik Buterin 41:32 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?

Lex Fridman 41:49 Mm-hmm.

Vitalik Buterin 41:50 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-

Lex Fridman 42:57 Oh.

Vitalik Buterin 42:57 ... and then you resell it to him at, you know, $15,000 minus one. Um, so there's-

Lex Fridman 43:02 And then you get to make a little bit of money that way.

Vitalik Buterin 43:03 Exactly, so there's a lot of these different, like, arbitrage, front-running, back-running, these different tricks that allow block proposers to-

Lex Fridman 43:11 To get some percentage on top, like overhead.

Vitalik Buterin 43:13 Exactly.

Lex Fridman 43:14 Okay. So-

Vitalik Buterin 43:14 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.

Lex Fridman 44:19 Mm-hmm.

Vitalik Buterin 44:20 Um, so I think the ecosystem's best reply to this sort of risk, and it's the direction we're... projects like Flashbots are going already, is if you can't eliminate the centralization then you try to firewall it, right? And the way that you firewall it is you basically say, "We're going to try to deliberately create a marketplace where people can just do the complicated work of creating what are called bundles, like, uh, bundles of transactions that, like, are very profitable." Right? And then at, at the other side of the market you just have, like, block proposers or miners that are just dumb nodes, and they go and ask the bu- the, what are called searchers, the bundle creators, and they just ask like, "Hey, like, how much can you give me if I put in your bundle?" And then they just take the highest offer, right? So you sort of separate out the task and, you know, you have the easy part and then you have the hard part, and you have, like, this special class of actor called a searcher that does the hard part. And then the easy part j- uh, the people doing the easy part, which is just miners and validators, they kind of just talk to all the different people doing the searching and they just, you know, accept the highest bidder. Right? So I mean, this is als- just, like, interesting, uh, an interesting example of, like, economic design philosophy, right? Like, sometimes you can't just, like, make centralization go away, sometimes it's inevitable. But, you know, at least you can try to kind of contain it, you can direct it, or, you know, you can even sort of firewall it away from, you know, core consensus, the parts that really do need to be decentralized. So wha-

Lex Fridman 45:52 But you don't see it as an existential risk, it's just a little-

Vitalik Buterin 45:55 I mean-

Lex Fridman 45:55 ... uh, it's a bit of-

Vitalik Buterin 45:56 It's-

Lex Fridman 45:56 ... a problem that has to be constantly dealt with?

Vitalik Buterin 45:58 It's a r- I mean, it's a risk, like, there's obviously a, a risk that, you know, there, it, it, it's a very severe problem, and that even this Flashbots approach has some fatal flaw or whatever.

Lex Fridman 46:07 Yeah.

Vitalik Buterin 46:07 Um, but y- I'm definitely like... we're definitely approaching it with the mindset of, you know, this is a problem and, like, yes, we do have to do some work to solve it, but we're doing it, and, uh, so far it's being solved.

Lex Fridman 46:20 Okay, let's talk about the other really, really fascinating part of-

Vitalik Buterin 46:23 Mm-hmm.

Lex Fridman 46:25 ... uh, the future of Ethereum.

Vitalik Buterin 46:26 Mm-hmm.

Lex Fridman 46:26 Let's not call it Ethereum 2.0, but the future of Ethereum-

Vitalik Buterin 46:30 Mm-hmm.

Lex Fridman 46:30 ... that also may require a hard fork? I don't know, you can correct me on this. Is... well, broadly-

Vitalik Buterin 46:37 Hmm.

Lex Fridman 46:37 ... ideas for scaling?

Vitalik Buterin 46:39 Yes.

Lex Fridman 46:40 And more specifically, sort of, uh, layer two or, uh-

Vitalik Buterin 46:45 Hmm.

Lex Fridman 46:45 ... 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?

Vitalik Buterin 46:55 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.

Vitalik Buterin 47:43 Mm-hmm.

Lex Fridman 47:43 So one way to achieve layer one scaling is to increase the block size.

Vitalik Buterin 47:48 Yes.

Lex Fridman 47:48 Hence the block size wars, quote, unquote.

Vitalik Buterin 47:51 Mm-hmm.

Lex Fridman 47:51 And, uh, you actually tweeted something about, uh-

Vitalik Buterin 47:55 Mm-hmm.

Lex Fridman 47:55 ... people are saying that Vitalik changed his mind about the, in, uh-

Vitalik Buterin 47:59 Mm-hmm.

Lex Fridman 47:59 He be- he went from being a s- sm- small blocker to-

Vitalik Buterin 48:02 Uh, went from being big to small.

Lex Fridman 48:03 Is it big to small?

Vitalik Buterin 48:04 Or, or one of them.

Lex Fridman 48:05 And, uh, but you said, "I've been a medium-"

Vitalik Buterin 48:07 Mm-hmm.

Lex Fridman 48:08 "... blocker all along." So maybe you can also comment on (laughs) on where... on the very basic aspect, before we even get to sharding-

Vitalik Buterin 48:14 Sure.

Lex Fridman 48:14 ... of where you stand on this block size debate.

Vitalik Buterin 48:17 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-

Lex Fridman 49:31 Oh, interesting. I didn't even know that part. (laughs)

Vitalik Buterin 49:33 Yeah. But then-

Lex Fridman 49:34 That's interesting.

Vitalik Buterin 49:34 ... 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-

Lex Fridman 49:44 By put, you mean sneaked in there?

Vitalik Buterin 49:47 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.

Lex Fridman 50:49 Mm-hmm.

Vitalik Buterin 50:49 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?

Lex Fridman 51:18 Right.

Vitalik Buterin 51:18 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.

Lex Fridman 51:42 Mm-hmm.

Vitalik Buterin 51:43 And, look, they have this belief that, you know, soft forks are kind of either less coercive than hard forks, which by the way, I completely disagree with. Um, I actually think soft forks are more coercive because, like, basically they force everyone who disagrees to sort of go along by default. Um, but... Or they have this, um, opinion that, um, there's like... It's more difficult to abuse soft forks to do really mean things, like, or that, like, completely violate people's expectations, like increasing the supply. Which is, again, there is, there is... I think there is some truth to that. Um, so because of, you know, these reasons, they just say, "We're only going to do soft forks and we're... We don't... We want to just not do any hard forks." And they eventually discovered this idea called segregated witness that allows for, like, a very tiny block size increase to, like, the equivalent of about two megabytes, um, with a soft fork. It's, it's just a really, like, pshh, d- weird and devious trick. Like, basically what they do is they take the signatures of transactions and then they put them outside of the block, and then they add an extra rule that says that, like, every... For a block to be valid, the block has to come with a separate, like, basically extension block that contains all of the transaction signatures, right? So, you know, when you measure it according to the old rules, like, you know, hey, it adds up to less than a million, but actually there's this extension block that the old protocol doesn't even know about. So-

Lex Fridman 53:07 It's a hack that, that seemed to work to, to... In a small way extend-

Vitalik Buterin 53:11 Exactly.

Lex Fridman 53:11 ... the size of the block sizes. Yeah.

Vitalik Buterin 53:11 But, so, you know, small block side was, like, happy with these very low levels of block size and then the big block side wanted to expand to, you know... At the very least go to four megabytes, then, you know, maybe go... Maybe eight to 20. There, there's disagreements so within there as well. Um, I definitely was, uh, favoring the big side, um, uh, the whole way through as (laughs) you can probably tell. Um, but-

Lex Fridman 53:34 Even though... So, the argument against the big... Is that, uh, it, uh, makes things more centralized.

Vitalik Buterin 53:40 Yes. Because fewer people can run a node that verifies-

Lex Fridman 53:43 Yes.

Vitalik Buterin 53:43 ... the chain and also because any of these things would require a hard fork and, you know, hard forks are inherently risky.

Lex Fridman 53:49 Do you think there's truth to that?

Vitalik Buterin 53:51 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-

Lex Fridman 53:59 Well, let's... Okay, okay. I think that's a beautiful-

Vitalik Buterin 54:02 (laughs)

Lex Fridman 54:03 ... principle as stated-

Vitalik Buterin 54:05 Mm-hmm.

Lex Fridman 54:05 ... that soft forks may be more coers- coercive than hard forks.

Vitalik Buterin 54:09 Mm-hmm.

Lex Fridman 54:10 This, this is not just about cryptocurrency, this is about-

Vitalik Buterin 54:14 Mm-hmm.

Lex Fridman 54:14 ... politics and life.

Vitalik Buterin 54:16 Mm-hmm. Mm-hmm.

Lex Fridman 54:16 That's fascinating.

Vitalik Buterin 54:17 Mm-hmm.

Lex Fridman 54:18 So, you're okay with hard forks?

Vitalik Buterin 54:20 Yes.

Lex Fridman 54:20 In fact, you think hard forks is the right way to make changes-

Vitalik Buterin 54:24 Mm-hmm.

Lex Fridman 54:24 ... because then everybody's forced to make a decision.

Vitalik Buterin 54:27 Right.

Lex Fridman 54:27 Do you accept this change or not?

Vitalik Buterin 54:29 Mm-hmm.

Lex Fridman 54:29 As opposed to ideas being sneaked in behind the door and you're... Uh, and that decision-

Vitalik Buterin 54:34 Mm-hmm.

Lex Fridman 54:34 ... is forced on you.

Vitalik Buterin 54:34 Exactly. Yeah.

Lex Fridman 54:36 Okay, so but, you know, hard forks, some people say... This is when they talk about sort of Ethereum.

Vitalik Buterin 54:41 Mm-hmm.

Lex Fridman 54:42 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-

Vitalik Buterin 54:50 I think soft forks, they're also upgrading an airplane while it's flying.

Lex Fridman 54:53 But it's just smaller upgrades. (laughs)

Vitalik Buterin 54:56 That's... You get... Uh-

Lex Fridman 54:57 Like, you're-

Vitalik Buterin 54:57 There's some truth to that.

Lex Fridman 54:58 Yeah.

Vitalik Buterin 54:58 Like, there, there's definitely, um... There's definitely a bit more risk of, like, a, a split as a result of a hard fork than as a result of a soft fork. Um-

Lex Fridman 55:07 And this split is highly undesirable, right? But-

Vitalik Buterin 55:10 Well, it depends. Like, if it's a split because of a bug, then that's horrible. If it's a split as a result of political differences, then I think, like, a split is better than, you know, one side being forced to basically just, like, suck it up and ac- and accept the majority position even if it really hates it.

Lex Fridman 55:27 Well, there's also political connections throughout the history of the United States. It's like, sometimes groups of people that strongly disagree with each other-

Vitalik Buterin 55:35 Mm-hmm.

Lex Fridman 55:35 ... should be forced to work it out, even if they... Even when a split seems like an easy thing in the short term.

Vitalik Buterin 55:42 It depends. And I think, like, well, for blockchains in particular, the costs of, uh, people being able to, like, peacefully do their... Go off and do their own thing are much lower, right? Like, you know, okay, if you have a country and you have two groups, then, uh, hmm, like, often enough, like, f- fighting out the new rules requires that, you know, a civil war, requires-

Lex Fridman 56:02 Yeah.

Vitalik Buterin 56:02 ... everyone to move and so forth. But no, on, on a blockchain, like, you know, the costs are lower, and so (whistles)

Lex Fridman 56:07 So if you were to look at the way things worked out with the blocksize wars-

Vitalik Buterin 56:11 Mm-hmm.

Lex Fridman 56:11 ... and there was a split-

Vitalik Buterin 56:13 Hmm.

Lex Fridman 56:14 What is it? Bitcoin Cash and all those-

Vitalik Buterin 56:15 And Bitcoin.

Lex Fridman 56:16 Yeah. Uh-

Vitalik Buterin 56:17 Hmm.

Lex Fridman 56:18 Would y- Like, you looking, putting on your historian hat, you mentioned offline you like Dan Carlin. So if, if Dan Carlin (laughs) wanted to do an episode on the, uh, on the blocksize wars-

Vitalik Buterin 56:29 (laughs)

Lex Fridman 56:29 ... uh, do you think, uh, it could have turned out better or do you, um... Are you okay with the way it turned out?

Vitalik Buterin 56:37 (sighs) I'm definitely disappointed with what happened with the block, with the, the big block side. Um, I think the source of my disappointment is that, like, one of the things that you notice when just by looking at, like, this political disagreements generally, especially when you have environments where, you know, they're authoritarian or, like, single-party dominated, and then there's some opposition party. And the opposition often has, like, very legitimate grievances, but at the same time, the thing you notice is that often enough, the opposition just sucks, right? Like, it just doesn't have, you know, political capacity. It doesn't have, like, the ability to come up with policy because its entire culture is, like, designed around resisting much more than it's designed around like, you know, actually debating serious policy trade-offs. And I f- I worry or I guess, not so much worry 'cause it's already happened, I, uh, unfortunately think that Bitcoin Cash ended up being a victim of this, right?

Vitalik Buterin 57:34 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.

Lex Fridman 57:53 This is definitely gonna be depth-first search-

Vitalik Buterin 57:55 (laughs)

Lex Fridman 57:55 ... 'cause I gotta ask you about Craig.

Vitalik Buterin 57:56 (laughs)

Lex Fridman 57:57 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)

Vitalik Buterin 58:07 (laughs)

Lex Fridman 58:07 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-

Vitalik Buterin 58:39 Hmm.

Lex Fridman 58:39 ... who continually keeps claiming that he is, in fact, Satoshi Nakamoto and keeps suing a lot of people.

Vitalik Buterin 58:45 (laughs)

Lex Fridman 58:46 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-

Vitalik Buterin 58:53 Mm-hmm.

Lex Fridman 58:53 ... to make of this character? Should he be ignored? Is there any possible truth to his claims? Um, what do you make of him?

Vitalik Buterin 59:01 The, the analogy that's at the s- uh, at the top of my head will get a bit political, but, um-

Lex Fridman 59:05 Oh, boy.

Vitalik Buterin 59:05 ... that's fine. You've had Michael Malice. Um...

Lex Fridman 59:07 (laughs)

Vitalik Buterin 59:07 So (laughs) , um, I guess I view Craig Wright as being kind of like a Donald Trump figure.

Lex Fridman 59:12 Yes.

Vitalik Buterin 59:12 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.

Lex Fridman 1:00:25 But that extra part about where he's Satoshi Nakamoto, I don't understand why that's necessary.

Vitalik Buterin 1:00:29 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.

Lex Fridman 1:00:36 Right.

Vitalik Buterin 1:00:36 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-

Lex Fridman 1:00:49 Right.

Vitalik Buterin 1:00:49 ... 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.

Lex Fridman 1:01:35 Mm-hmm.

Vitalik Buterin 1:01:35 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.

Lex Fridman 1:01:58 (laughs)

Vitalik Buterin 1:01:58 Um, but, but basically, he made this, like, technical argument that really hedged on this point and then when pe- when people pressed him on it, he's like, "Yes, what? No, no. Like, what? Look. Exactly. The, the height is like, what? Two hund- two to the 256 bits. That's a, a very t- uh, a very tiny amount of information. No, no, no, no. 200... Two to the 256 bits is more than the infor- amount of information in the universe." And, like, he, you know, equivocated and kind of, like, preyed on people's inability to un- m- understands that mathematical nuance, and I called him out, and eventually I even called him out in person at this, uh, conference in Seoul. Like, I just, uh, stood up and asked, uh, uh, you know, "Hey, you know, conference organizer, why are you letting this fraud speak at this conference?"

Lex Fridman 1:02:39 Yes.

Vitalik Buterin 1:02:39 And, uh, I remember even some big blockers at the time getting angry at me. Um, but, you know, eventually they, uh, did get rid of him and then Craig... Well, basically Craig Wright, um, was forced to, to split off because the rest of the community refused to accept some network change that he wanted. And so then there was the BCH and BSV, and then in the Bitcoin Cash community, there was this drama of, are they going to add a, uh, developer fund where they redirect 12 and a half percent of the revenue from the miners to the devs? And according to the libertarian non-aggression principle, is this technically theft? (laughs) And, um...

Lex Fridman 1:03:15 Like, his, um, understanding of the technical depths of cryptocurrency was lacking in a way that you, uh, Satoshi Nakamoto certainly would not.

Vitalik Buterin 1:03:23 Yes. Exactly. But the point is that even after Craig Wright got expunged, the Bitcoin Cash community kept having these disagreements, right?

Lex Fridman 1:03:30 Yes.

Vitalik Buterin 1:03:30 And now e- after this, uh, development funds dispute, there was, there was a further split between Bitcoin Cash and ABC, um, and so, you know, the, the, the branching tree continues to extend, right? So, y-

Lex Fridman 1:03:42 So, in that way it's disappointing to see those kinds of splitting that was never resolved.

Vitalik Buterin 1:03:46 Mm-hmm. It is. I would have definitely, like, wanted to see more of a kind of, like, v- principled coin with a... that, like, tries to be Bitcoin but fol- but, you know, follows consistent big block values, but-

Lex Fridman 1:04:00 Yeah.

Vitalik Buterin 1:04:00 ... I don't know. Maybe I should just, like, stop expecting projects that I have no involvement in to, uh, be care at all about what my values are and, you know, like, maybe Ethereum just, like, is (laughs) the-

Lex Fridman 1:04:10 It j- it just is.

Vitalik Buterin 1:04:10 ... the closest, yeah.

Lex Fridman 1:04:11 Nev- I, I think you have a powerful voice and you can inspire other projects to do the... to, to, to live up-

Vitalik Buterin 1:04:17 Mm-hmm.

Lex Fridman 1:04:17 ... to their best possible

Lex Fridman 1:04:18 selves. Okay. So that's the level... that's the layer one-

Vitalik Buterin 1:04:23 Uh-huh.

Lex Fridman 1:04:24 ... uh, a- approach. The other layer one, eh, within Ethereum is the idea of sharding.

Vitalik Buterin 1:04:29 Yes.

Lex Fridman 1:04:30 What the heck is sharding?

Vitalik Buterin 1:04:31 Mm-hmm. Okay.

Lex Fridman 1:04:32 What does the future of sharding look like?

Vitalik Buterin 1:04:33 Right. So to summarize that big, uh, long tangent that we just, uh, went on-

Lex Fridman 1:04:37 It was a beautiful tangent, by the way.

Vitalik Buterin 1:04:38 It's a... Yeah. It's an a- it's an amazing tangent and I think-

Lex Fridman 1:04:40 Yeah.

Vitalik Buterin 1:04:40 ... 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-

Lex Fridman 1:04:49 Yeah.

Vitalik Buterin 1:04:49 ... 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-

Lex Fridman 1:05:07 Yeah.

Vitalik Buterin 1:05:07 ... 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.

Lex Fridman 1:06:12 Mm-hmm.

Vitalik Buterin 1:06:12 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?

Lex Fridman 1:06:33 Yep.

Vitalik Buterin 1:06:33 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.

Lex Fridman 1:07:59 Mm-hmm.

Vitalik Buterin 1:07:59 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."

Lex Fridman 1:08:43 Mm-hmm.

Vitalik Buterin 1:08:43 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-

Lex Fridman 1:09:17 So it g- it gives you a little bit of a leg up over the 51% honest, uh-

Vitalik Buterin 1:09:22 Exactly.

Lex Fridman 1:09:22 ... assumption. So it's that little hack that improves upon the random sampling thing.

Vitalik Buterin 1:09:26 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.

Lex Fridman 1:09:52 That's sharding. But, but the... As I understand, and maybe correct me-

Vitalik Buterin 1:09:56 Mm-hmm.

Lex Fridman 1:09:57 ... uh, on this, is, um, in the space of Ethereum, the sh- the sharding happens on some fixed number. Like, the, the split is on some fixed number. I think it's 64-

Vitalik Buterin 1:10:09 Mm-hmm, mm-hmm.

Lex Fridman 1:10:09 ... is the currently sort of proposed number. So, um, how does that help scaling? Is it just a fixed constant scaling by 64?

Vitalik Buterin 1:10:18 Mm-hmm.

Lex Fridman 1:10:19 And is that a way to achieve those crazy, the crazy amount of scaling that seems to be required-

Vitalik Buterin 1:10:24 Mm-hmm.

Lex Fridman 1:10:25 ... to use cryptocurrency for, uh, f- for purchasing? So doing, like-

Vitalik Buterin 1:10:29 Mm-hmm.

Lex Fridman 1:10:29 ... competing with credit cards and Visa and so on?

Vitalik Buterin 1:10:31 Right. So first, I think, like, the 64 can be hard forked up over time. Um, so we have, uh, set it so that, like, there's theoretically space in the data structure for 1,024 shards. It's just that 64 of them are turned on. Um, like, there are challenges with having more shards because, like, you have to have logic that just, like, checks and manages all those, all of those shards. And if there's too many of them, then that becomes too expensive. Um, but, you know, even still, you can improve quite a bit. And then the other thing that we're doing is if... Like, we're getting maximum scalability by combining rollups and sharding, right? So this might be a good time to talk

Vitalik Buterin 1:11:07 about rollups.

Lex Fridman 1:11:07 What are rollups?

Vitalik Buterin 1:11:09 Okay.

Lex Fridman 1:11:09 Now we're moving into layer two ideas.

Vitalik Buterin 1:11:11 Yes. So the idea behind a rollup is basically that... So instead of, um, just publishing transactions directly on chain and-

Lex Fridman 1:11:25 Mm-hmm.

Vitalik Buterin 1:11:25 ... having everyone, you know, ch- do all of the checking of those transactions-

Lex Fridman 1:11:29 Mm-hmm.

Vitalik Buterin 1:11:29 ... um, what you do is you create a system where users send their transactions to some par- like, central party called an aggregator.

Lex Fridman 1:11:38 Mm-hmm.

Vitalik Buterin 1:11:38 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-

Lex Fridman 1:12:24 Mm-hmm.

Vitalik Buterin 1:12:24 ... 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?

Lex Fridman 1:12:44 Mm-hmm.

Vitalik Buterin 1:12:44 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.

Lex Fridman 1:12:58 Mm-hmm.

Vitalik Buterin 1:12:58 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.

Lex Fridman 1:14:44 Mm-hmm.

Vitalik Buterin 1:14:44 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.

Lex Fridman 1:15:48 The-

Vitalik Buterin 1:15:48 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.

Lex Fridman 1:16:04 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.

Vitalik Buterin 1:16:11 Mm-hmm.

Lex Fridman 1:16:11 You wrote that, uh, in the long term, ZK-rollups are going to win-

Vitalik Buterin 1:16:16 Mm-hmm.

Lex Fridman 1:16:16 ... in terms of Layer 2 technology.

Vitalik Buterin 1:16:18 Mm-hmm.

Lex Fridman 1:16:18 Specifically, you wrote, "In general, my own view is that, uh, in the short term, optimistic