Vitalik Buterin: Ethereum, Cryptocurrency, and the Future of Money | Lex Fridman Podcast #80

1. 0:00 – 4:43

   Introduction

   1. LFLex Fridman0:00

      The following is a conversation with Vitalik Buterin, co-creator of and author of the whitepaper that launched Ethereum and Ether, which is a cryptocurrency that is currently the second-largest digital currency after Bitcoin. Ethereum has a lot of interesting technical ideas that are defining the future of blockchain technology, and Vitalik is one of the most brilliant people innovating in the space today. Unlike Satoshi Nakamoto, the unknown person or group that created Bitcoin, Vitalik is very well-known and at a young age is thrust into the limelight as one of the main faces of the technology that may redefine the nature of money and all forms of digital transactions in the 21st century. This is the Artificial Intelligence Podcast. If you enjoy it, subscribe on YouTube, review it with five stars on Apple Podcast, support it on Patreon, or simply connect with me on Twitter @LexFridman, spelled F-R-I-D-M-A-N. As usual, I'll do one or two minutes of ads now, and never any ads in the middle that can break the flow of the conversation. I hope that works for you and doesn't hurt the listening experience. Quick summary of the ads. Two sponsors: Masterclass and ExpressVPN. Please consider supporting the podcast by signing up to Masterclass at masterclass.com/lex and getting ExpressVPN at expressvpn.com/lexpod. This show is sponsored by Masterclass. Sign up at masterclass.com/lex to get a discount and to support this podcast. When I first heard about Masterclass, I honestly thought it was too good to be true. For $180 a year, you get an all-access pass to watch courses from experts at the top of their field. To list some of my favorites: Chris Hadfield on space exploration; Neil deGrasse Tyson on scientific thinking and communication; Will Wright, the creator of SimCity and Sims, on game design, I love that game; (laughs) Jane Goodall on conservation; Carlos Santana, one-of-my-favorite guitarists, on guitar; Garry Kasparov on chess. Obviously, I'm Russian. I love Garry. (laughs) Daniel Negreanu on poker, one of my favorite poker players. Also, Phil Ivey is, uh, gives a course as well, and many, many more. Chris Hadfield explaining how rockets work and the experience of being launched into space alone is worth the money. By way of advice from me, the key is not to be overwhelmed by the abundance of choice. Pick three courses you want to complete, watch each all the way through from start to finish. It's not that long, but it's an experience that will stick with you for a long time, I promise. It's easily worth the money. You can watch it on basically any device. Once again, sign up at masterclass.com/lex to get a discount and to support this podcast. This show is sponsored by ExpressVPN. Download it at expressvpn.com/lexpod to get a discount and to support this podcast. I've been using ExpressVPN for many years. I honestly love it. It's easy to use. Press the big power-on button and your privacy is protected. And, if you like, you can make it look like your location is anywhere else in the world. I might be in Boston now, but I can make it look like I'm in New York, London, Paris, or anywhere else. This has a large number of obvious benefits. For example, certainly it allows you to access international versions of streaming websites, like the Japanese version of Netflix or the UK version of Hulu. As you probably know, I was born in the Soviet Union, so sadly, given my roots and appreciation of Russian history and culture, my website and the website for this podcast is blocked in Russia. So, this is another example of where you can use ExpressVPN to access sites, like the podcast, that are not accessible in your country. ExpressVPN works on any device that you can imagine. I use it on Linux, shout-out to Ubuntu, Windows, Android, but it's available everywhere else too. Once again, download it at expressvpn.com/lexpod to get a discount and to support this podcast. And now, here's my conversation with Vitalik Buterin.

2. 4:43 – 8:40

   Satoshi Nakamoto

   1. LFLex Fridman4:44

      So before we talk about the fundamental ideas behind e-Ethereum, cryptocurrency, perhaps it'd be nice to, uh, to talk about the, the origin story of Bitcoin-

   2. VBVitalik Buterin4:54

      Mm-hmm.

   3. LFLex Fridman4:54

      ... and the, uh, mystery of Satoshi Nakamoto.

   4. VBVitalik Buterin4:57

      Mm-hmm.

   5. LFLex Fridman4:58

      You gave a talk that started with sort of asking the question, what did, uh, Satoshi Nakamoto actually invent?

   6. VBVitalik Buterin5:05

      Mm-hmm.

   7. LFLex Fridman5:05

      Uh, maybe you could say, who is Satoshi Nakamoto and what did he invent?

   8. VBVitalik Buterin5:10

      Sure. So Satoshi, uh, Nakamoto is, uh, the name, uh, by which we know the, uh, person who, uh, originally came up with Bitcoin. So the reason why I say "the name by which we know" is that, uh, this is a, um, anonymous, uh, fellow who has, uh, shown himself to us only, um, over the internet, uh, just, uh, by, yeah, first publishing the whitepaper, uh, for Bitcoin, uh, then, uh, releasing the original source code for Bitcoin, and then talking to the very early Bitcoin community on Bitcoin forums and, uh, and of interacting with them but helping, uh, the project along for a couple of years. Um, and then at some point in, uh, late 2010 to early 2011, he disappeared. Uh, so Bitcoin is, uh, a fairly unique project in how it has this, uh, kind of g-... mythical or kind of quasi godlike founder who just kind of popped in, and did the thing, and then, uh, disappeared, and we've somehow just never heard from him again. (laughs)

   9. LFLex Fridman6:13

      So in, in 2008, was it, so the white paper was the first ... Do you know-

   10. VBVitalik Buterin6:17

       Yes.

   11. LFLex Fridman6:17

       ... if the white paper was the first time the name was, actually appears, Satoshi Nakamoto?

   12. VBVitalik Buterin6:22

       I believe so.

   13. LFLex Fridman6:23

       So how is it possible that the creator of such a impactful project remains anonymous?

   14. VBVitalik Buterin6:31

       That's a tough question. And-

   15. LFLex Fridman6:34

       There's no similarity to it in the history of technology, as far as I'm aware.

   16. VBVitalik Buterin6:38

       Yeah. So one possibility is that it's Hal Finney, um, because, uh, Hal Finney was, uh, kind of also, uh, active in the Bitcoin community, and it has, um, Hal Finney, um, in those, uh, two beginning years. And, uh, how-

   17. LFLex Fridman6:54

       Who is Hal Finney, maybe you could say?

   18. VBVitalik Buterin6:55

       Uh, he is, uh, one of the people in the kind of early cypherpunk community. He was, uh-

   19. LFLex Fridman7:01

       So was he a computer scientist, just one of them?

   20. VBVitalik Buterin7:03

       Yeah, computer scientists, cryptographers, people interested in, uh, like, technology, internet freedom, like those kinds of topics.

   21. LFLex Fridman7:14

       Uh, was it correct that, that I read that he seemed to have been involved in either the earliest or the first transaction of Bitcoin?

   22. VBVitalik Buterin7:21

       Yes. The first transaction of Bitcoin was between Satoshi and Hal Finney.

   23. LFLex Fridman7:26

       Do you think he knew who Satoshi was? If he wasn't-

   24. VBVitalik Buterin7:28

       If he wasn't Satoshi, probably no.

   25. LFLex Fridman7:31

       How is it possible to work so closely with people and nevertheless not know anything about their fundamental identity? Is, is this like a natural sort of characteristic of the internet?

   26. VBVitalik Buterin7:44

       Hmm.

   27. LFLex Fridman7:45

       Like, if we were to think about it, 'cause you and I just met now.

   28. VBVitalik Buterin7:49

       Mm-hmm.

   29. LFLex Fridman7:49

       There's a, there's a depth of knowledge that w- we now have about each other that's like physical. Like-

   30. VBVitalik Buterin7:55

       That's true.
3. 8:40 – 11:31

   Anonymity

   1. VBVitalik Buterin8:40

   2. LFLex Fridman8:40

      You are the creator of the second, well at least currently the second most popular cryptocurrency-

   3. VBVitalik Buterin8:46

      Mm-hmm.

   4. LFLex Fridman8:46

      ... uh, Ethereum. So on this topic, if we just stick on Satoshi Nakamoto for, for a little bit longer-

   5. VBVitalik Buterin8:52

      Mm-hmm.

   6. LFLex Fridman8:52

      ... you may be the most qualified person to speak to the psychology of this anonymity that we're talking about.

   7. VBVitalik Buterin8:58

      Mm.

   8. LFLex Fridman8:59

      Like, your identity is known.

   9. VBVitalik Buterin9:01

      Yes.

   10. LFLex Fridman9:01

       Like we, I've just verified it. But, uh, from your perspective, what are the benefits in, uh, creating a cryptocurrency and then remaining anonymous? Like if we can psychoanalyze-

   11. VBVitalik Buterin9:13

       Mm-hmm.

   12. LFLex Fridman9:13

       ... Satoshi Nakamoto, is there something interesting there? Or is it just-

   13. VBVitalik Buterin9:17

       It def-

   14. LFLex Fridman9:17

       ... a peculiar quirk of him?

   15. VBVitalik Buterin9:20

       It definitely helps create this, uh, kind of image of this, uh, kind of neutral thing that doesn't belong to anyone. Um, that, you know, you created a project-

   16. LFLex Fridman9:31

       Okay.

   17. VBVitalik Buterin9:31

       ... and because you're anonymous, and because, uh, you also have, uh, disappear or, as unfortunately happened to Hal Finney, if that is him, he ended up, uh, I think dying of, uh, Lou Gehrig's disease and he's in a cryogenic freezer now. But, like if you pop in and you d- and, uh, you created and m- and you're gone, and, uh, all that's remaining of, uh, that whole process is the thing itself, then like no one can go and try to, um, kind of interpret any of your other behavior and try to understand like, oh, the, like this person wrote this thing, um, in some essay at a- at age 16 where he expressed particular opinions about democracy, and so because of that, this project is like, is a statement that's trying to do this specific thing. Like it instead it creates, uh, this, uh, environment where the thing is what you make of it. And, hmm.

   18. LFLex Fridman10:30

       It doesn't have to have the, yeah, right, the, the burden of your other ideas, political thought, and so on. So w- so now that we're s- sitting with you, do you feel the burden of being kind of the face of Ethereum?

   19. VBVitalik Buterin10:44

       Mm-hmm.

   20. LFLex Fridman10:44

       I mean, there's a very large community of developers-

   21. VBVitalik Buterin10:46

       Mm-hmm.

   22. LFLex Fridman10:46

       ... but nevertheless-

   23. VBVitalik Buterin10:48

       Yeah.

   24. LFLex Fridman10:48

       ... uh, d- is there like a burden associated with that?

   25. VBVitalik Buterin10:52

       There definitely is. This is, uh, definitely a big reason why I've, uh, been trying to kind of push for the Ethereum ecosystem to become more decentralized in many ways, like just encouraging a lot of kind of core Ethereum work to happen outside of the Ethereum Foundation, and of expanding, you know, the number of people that are making different kinds of decisions, having kind of multiple soft removable limitations instead of one, and all of these things. Like there's a lot of things that I've tried to do to, uh, kind of remove myself as a single point of, uh, failure, because that is something that a lot of people criticiz- uh, criticize me for, um

4. 11:31 – 13:04

   Open source project leadership

   1. VBVitalik Buterin11:31

      ...

   2. LFLex Fridman11:31

      So if you look at like the most-

   3. VBVitalik Buterin11:33

      Uh-huh.

   4. LFLex Fridman11:33

      ... fundamentally successful open source projects-

   5. VBVitalik Buterin11:36

      Uh-huh.

   6. LFLex Fridman11:37

      ... it seems that-

   7. VBVitalik Buterin11:38

      Mm-hmm.

   8. LFLex Fridman11:38

      ... it's like a sad reality when I think about it-

   9. VBVitalik Buterin11:41

      Uh-huh.

   10. LFLex Fridman11:41

       ... is it seems to be that one person is a crucial contributor often. If you look at Linus from-

   11. VBVitalik Buterin11:47

       Mm-hmm.

   12. LFLex Fridman11:48

       ... from, uh, for the, for Linux, for the kernel.

   13. VBVitalik Buterin11:51

       Yep, that is possible, and I'm definitely not planning to disappear. (laughs)

   14. LFLex Fridman11:55

       (laughs) That's an interesting, um, tension-

   15. VBVitalik Buterin11:59

       Mm-hmm.

   16. LFLex Fridman11:59

       ... that, uh, projects like this kind of desire a single entity, and yet they're fundamentally distributed.

   17. VBVitalik Buterin12:07

       Mm-hmm.

   18. LFLex Fridman12:08

       I don't, I don't know if there's something interesting to say about that kind of structure, and thinking about the future of cryptocurrency, does there need to be a leader?

   19. VBVitalik Buterin12:17

       There's different kinds of leaders. You know, there's, uh, there's dictators who control all the money, there's, uh, people who control organizations, there's, uh, kind of high priests that just have themselves and their Twitter followers. Uh-

   20. LFLex Fridman12:30

       What kind of leader are you, would you say?

   21. VBVitalik Buterin12:32

       You know, in these days, um...

   22. LFLex Fridman12:35

       (laughs)

   23. VBVitalik Buterin12:35

       I actually (laughs) a bit more in the high p- in the high priest direction than before.

   24. LFLex Fridman12:40

       Yeah.

   25. VBVitalik Buterin12:40

       Like, I definitely actually don't do all that much of kind of going around and, like, ordering Ethereum Foundation people to do things because I think those things are important. I, if, if there's something that I do think is important, I u- I do just usually kind of say it publicly or just kind of say it to people and, uh, quite often, projects just kind of start doing

5. 13:04 – 30:02

   What is money?

   1. VBVitalik Buterin13:04

      it.

   2. LFLex Fridman13:05

      So let's ask the high philosophical question-

   3. VBVitalik Buterin13:08

      Sure.

   4. LFLex Fridman13:08

      ... is about money.

   5. VBVitalik Buterin13:09

      Yeah.

   6. LFLex Fridman13:10

      What, at the highest level, is money? What is money?

   7. VBVitalik Buterin13:15

      It's a kind of game, and-

   8. LFLex Fridman13:16

      (laughs)

   9. VBVitalik Buterin13:16

      ... it's a game where, you know, we have points, and, like, if you have points, there's this one move where you can reduce your points by a number and increase someone else's points by the same number. And these-

   10. LFLex Fridman13:28

       So it's a fair game, hopefully.

   11. VBVitalik Buterin13:30

       Well, it's one kind of fair game. Like, for example, you, you know, you can have other kinds of fair games, like you're gonna have a game where if I give someone a point and you give someone a point, then instead of that person getting two points, that person gets four points, and that's also fair. Is...

   12. LFLex Fridman13:43

       Yeah.

   13. VBVitalik Buterin13:44

       Um, but, you know, money is, um, easy to kind of set up and it serves a lot of useful functions, and so it kind of just survives into, in society as a meme for, you know, thousands of years.

   14. LFLex Fridman13:57

       It's useful for the s- storage of wealth.

   15. VBVitalik Buterin14:00

       Mm-hmm.

   16. LFLex Fridman14:00

       It's useful for the, uh, exchange of value.

   17. VBVitalik Buterin14:03

       And it's also useful for denominating future payments, a unit of account.

   18. LFLex Fridman14:09

       A uni- a unit of account. So what... If you look at the history of money in human-

   19. VBVitalik Buterin14:14

       Mm-hmm.

   20. LFLex Fridman14:14

       ... civilization, what... Just a... If, if you're a student of history, like-

   21. VBVitalik Buterin14:19

       Mm-hmm.

   22. LFLex Fridman14:19

       ... how has its role or just the mechanisms of money changed over time in your view? Even if we just look at the 20th century or before and then leading up to cryptocurrency, is that something-

   23. VBVitalik Buterin14:31

       Mm-hmm.

   24. LFLex Fridman14:31

       ... you think about?

   25. VBVitalik Buterin14:33

       Yeah, and I think (sighs) like, the big thing in the 20th century is kind of we saw a lot more intermediation, I guess. Like, you know, in the first part is kind of the move from, mm, bank, uh, adding m- more different kinds of banking and then as s- we, uh, saw the move from enough dollars being backed by gold to dollars being backed by gold that's only redeemable by certain people to dollars not being backed by anything, um, to, uh, an ass- this, uh, you know, system where you have a bunch of free-floating currencies and then people, like, um, getting, you know, bank accounts and then those things becoming electronic, people getting accounts with payment processors that have accoun- um, bank accounts. Uh, so...

   26. LFLex Fridman15:20

       So what, w- what do you make of that? That's such a fascinating philosophical idea that, uh, money might not be backed by anything.

   27. VBVitalik Buterin15:27

       Mm-hmm.

   28. LFLex Fridman15:29

       What... Is that, like, fascinating to you that money can exist without being backed by something physical?

   29. VBVitalik Buterin15:35

       It definitely is. It's-

   30. LFLex Fridman15:36

       Like, what do you make of that? (laughs)
6. 30:02 – 46:51

   Blockchain and cryptocurrency basics

   1. LFLex Fridman30:02

   2. VBVitalik Buterin30:02

      Mm-hmm.

   3. LFLex Fridman30:02

      So if we could, can we go to the very basics?

   4. VBVitalik Buterin30:06

      Mm-hmm.

   5. LFLex Fridman30:07

      What is...... the blockchain, or perhaps we might even start-

   6. VBVitalik Buterin30:12

      Mm-hmm.

   7. LFLex Fridman30:12

      ... at the, uh, the, the Byzantine Generals Problem, the Byzantine fault tolerance in general, that I, I, uh, Bitcoin was-

   8. VBVitalik Buterin30:22

      Mm-hmm.

   9. LFLex Fridman30:22

      ... taking steps to, uh, providing a solution for.

   10. VBVitalik Buterin30:25

       Mm-hmm. So the Byzantine Generals Problem is this, uh, paper that, uh, Leslie Lamport, uh, published in 1982, where as he has this thought experiment where if you have two generals that are kind of camped out on opposite sides of a city, um, and they're planning, uh, when to attack the city, then, uh, the question is kind of how could those generals coordinate with each other, and they could send messen- messengers between each other, but those messengers kind of could get sniped by the enemy on the ro- uh, road. Uh, some of those messages could end up being traitors and things could end up happening. And with, uh, just, uh, two, uh, mess- uh, generals, it turns out that there's kind of no f- solution in a finite number of realms, uh, that guarantees that they will, uh, be able to kind of coordinate on the same answer. Um, but, but then in the case where you have more than two generals and then Leslie an- analyzes cases like, um, are the messen- m- messages kind of just oral messages, um, are the messages kind of signed messages so I could give you a me- a signed message and then you can pass along that signed message and the third party can still verify that I originally ma- uh, made that message? And depending on those different cases, there's kind of different bounds on, like, given how many generals and how many traitors, um, uh, among those generals, kind of what, uh, like under what conditions you actually can agree when to launch an attack. Uh, so it's actually a big misconception that the, the Byzantine Generals Problem was unsolved. So Leslie Lamport solved it. The thing that was unsolved though is that all of these solutions assume that you've already agreed on kind of a fixed list of who the generals are. And these generals have to be kind of semi-trusted to some extent. They can't just be anonymous people because if they're anonymous, then, like, the enemy could just be 99% of the generals. Uh, so... (laughs)

   11. LFLex Fridman32:25

       Right, right.

   12. VBVitalik Buterin32:25

       The, um... Um, in the 1980s and the 1990s, kind of the general use case for distributed system stuff was more kind of enterprise-y stuff where you could kind of assume that, uh, you know, you know who the nodes are that are running these kind of computer networks. So if you wants to have some kind of decentralized computer network that pretends to be a single computer and that you can kind of do a k- do kind of operations on, then it's made out of these kind of 15 specific computers, and we know kind of who and where they are, and so we have a good reason to believe that, say, at least 11 of them would be fine. And it-

   13. LFLex Fridman33:05

       Yeah.

   14. VBVitalik Buterin33:05

       ... it could also be within a, a single system, or- Exactly.

   15. LFLex Fridman33:09

       ... almost like a, almost a network of devices, sensors-

   16. VBVitalik Buterin33:11

       Yep.

   17. LFLex Fridman33:11

       ... so on, like in air-

   18. VBVitalik Buterin33:12

       Exactly.

   19. LFLex Fridman33:12

       ... airplanes and-

   20. VBVitalik Buterin33:13

       Yep.

   21. LFLex Fridman33:13

       ... I think, uh, like flight systems in general-

   22. VBVitalik Buterin33:16

       Mm-hmm.

   23. LFLex Fridman33:16

       ... still use these kinds of ideas.

   24. VBVitalik Buterin33:17

       Yep, yep. Um, so-

   25. LFLex Fridman33:19

       So that's the '80s.

   26. VBVitalik Buterin33:20

       That's the '80s and '90s. Now, the cypherpunks had a different use case in mind, which is-

   27. LFLex Fridman33:24

       Uh-huh.

   28. VBVitalik Buterin33:25

       ... that they wanted to create a, uh, fully, uh, decentralized, uh, global permissionless currency. And the problem here is that they didn't want any authorities, and they didn't even want any kind of privileged list of people.

   29. LFLex Fridman33:38

       Right.

   30. VBVitalik Buterin33:38

       And so now the question is, well, how do you use these techniques to create consensus when you have no way of kind of measuring identities, right? You have no way of kind of determining whether or not some 99% of, uh, participants aren't actually all the same guy.
7. 46:51 – 59:23

   Ethereum

   1. VBVitalik Buterin46:51

   2. LFLex Fridman46:51

      So then what is, um, the origin story, maybe the human side, but also-

   3. VBVitalik Buterin46:56

      Mm-hmm.

   4. LFLex Fridman46:56

      ... the technical side of Ethereum?

   5. VBVitalik Buterin46:58

      Sure. Uh, so I joined the, uh, Bitcoin community, uh, in, uh, 2011, and I started by just writing. I first wrote for this sort of online thing called Bitcoin Weekly, then I started writing for, uh, Bitcoin Magazine, (coughs) um, and, uh...

   6. LFLex Fridman47:15

      Sorry to interrupt. You have this funny-

   7. VBVitalik Buterin47:16

      Sure.

   8. LFLex Fridman47:16

      ... kind of, uh, story, true or not, is, uh, that you were disillusioned by the downsides of centralized control from your experience with WoW, World of Warcraft.

   9. VBVitalik Buterin47:28

      (laughs)

   10. LFLex Fridman47:28

       Is this true, or you're just being witty? (laughs)

   11. VBVitalik Buterin47:31

       Uh, I mean, the event is true. The fact that that's the reason I do decentralization is witty.

   12. LFLex Fridman47:35

       (laughs) May- maybe just a small tangent. D- have you always had a skepticism of centralized control? Is that sort of-

   13. VBVitalik Buterin47:45

       To some degree, yeah.

   14. LFLex Fridman47:46

       Ha- has that feeling evolved over time? Or is that just always been a core feeling that decentralized control is the future of our human society?

   15. VBVitalik Buterin47:55

       It's definitely been something that felt very attractive to me ever since I could afford that such a thing is kind of possible.

   16. LFLex Fridman48:01

       It's possible, even technically.

   17. VBVitalik Buterin48:02

       Yeah.

   18. LFLex Fridman48:03

       So great, so you're... You joined the Bitcoin community in 2011, you said. You began writing.

   19. VBVitalik Buterin48:07

       Mm-hmm.

   20. LFLex Fridman48:08

       So wha- what's next?

   21. VBVitalik Buterin48:10

       ... started writing, uh, moved from high school to university halfway in between that, and spent a year in- in university. Uh, um, then at the end of that year, I, uh, dropped out to- to do, uh, Bitcoin things, uh, full time, and this was a combination of continuing to write Bitcoin Magazine, but also increasingly work on software projects. And I, uh, traveled around the world for about six months, and just going to different Bitcoin communities, like I went to, uh, first in New Hampshire, then Spain, other European places, um, Israel, and then San Francisco, and along the way, and I've met a lot of other people that are working on different Bitcoin projects. And when I was in, uh, Israel there were some kind of very smart teams there that were working on ideas that people were starting to kind of call Bitcoin 2.0. So one of these was Colored Coins, which is basically saying that, "Hey, let's, uh, not just use the blockchain for Bitcoin, but let's also kind of issue other kinds of assets on it." And then there was a protocol called Mastercoin that supported issuing assets, but also supported many other things, uh, like financial contracts, like domain name registration, and of a lot of different things together. And I, um, spent some time working with these teams, and I quickly, uh, kind of realized that this Mastercoin protocol could be improved by kind of generalizing it more, right? So the Mas- the analogy I use is that the Mastercoin protocol was like the Swiss army knife. You have 25 different transaction types for 25 different applications, but what I realized is that you could replace a bu- a bunch of them with things that are more general purpose. So one of them was that you could replace, like three transaction types for three types of financial contracts with a generic transaction type for a financial contract that just lets you specify a mathematical formula for kind of who g- how much money each side gets.

   22. LFLex Fridman50:09

       By the way, just a small pause. What's- Mm-hmm. You say financial contract, just the terminology. What is a contract?

   23. VBVitalik Buterin50:16

       Um, that's-

   24. LFLex Fridman50:16

       What's a financial contract?

   25. VBVitalik Buterin50:18

       So the- the an- this is just generally an agreement where kind of either one or two parties kind of put collateral kind of in, um, and then they, depending on kind of certain conditions, like this could involve prices of assets, this could involve diff- um, the actions of the two parties, uh, it could involve other things, uh, but they kind of get kind of different amounts of, uh, o- of assets out that kind of just depend on things that happened.

   26. LFLex Fridman50:45

       So a contract is really- a financial contract is the- is at the core-

   27. VBVitalik Buterin50:49

       Mm-hmm.

   28. LFLex Fridman50:49

       It's the- it's the core interactive element of a financial system.

   29. VBVitalik Buterin50:53

       Yeah. There's, you know, there's many different kinds of, uh, financial contracts, like there's things like options where you kind of give someone the right to buy a thing that you have for some specific price for some period of time. There's, uh, contracts for difference where you basically are kind of making a bet that says, like, "For every dollar this thing goes up, I'll give you $7, or for every dollar that thing goes down, you give me $7," or something like that. And...

   30. LFLex Fridman51:20

       But the main idea that these contracts have to be enforced and trusted, um...
8. 59:23 – 1:02:12

   Proof of work

   1. VBVitalik Buterin59:23

   2. LFLex Fridman59:23

      Can you maybe elaborate on that a little bit? I understand the idea of proof of work.

   3. VBVitalik Buterin59:27

      Mm-hmm.

   4. LFLex Fridman59:27

      Um, I know that a lot of people say that pr- the idea of proof of stake is really appealing.

   5. VBVitalik Buterin59:31

      Mm-hmm.

   6. LFLex Fridman59:32

      Can you maybe linger on it longer, explain what it is?

   7. VBVitalik Buterin59:35

      Sure, uh, so basically the idea is, like, if I kind of lock up 100 coins, then I turn that into a kind of, quote, virtual miner, and the system itself kind of automatically and randomly assigns, uh, that and a virtual miner the right to create blocks at particular intervals. And then if someone else has 200 coins and they k- lock and unlock those 200 coins, then they get a kind of twice as big virtual miner. They'll be able to create, uh, blocks twice as often, right? So it tries to kind of do similar things to proof of work, except instead of the thing kind of, um, rate limiting your participation being your ability to crank out, uh, solutions to kind of hash challenges, the thing that really limits your participation is kind of how much coins you're kind of locking into this mechanism.

   8. LFLex Fridman1:00:29

      Okay, so then interesting, so that, that limited participation doesn't require you to run a lot of compute.

   9. VBVitalik Buterin1:00:34

      Mm-hmm.

   10. LFLex Fridman1:00:36

       Uh, does that mean that the richer you are-

   11. VBVitalik Buterin1:00:40

       Mm-hmm.

   12. LFLex Fridman1:00:41

       ... so rich people, um, are more... like, their identity is more, um-

   13. VBVitalik Buterin1:00:48

       Right. And this-

   14. LFLex Fridman1:00:49

       ... stable.

   15. VBVitalik Buterin1:00:51

       Yeah.

   16. LFLex Fridman1:00:52

       Verifiable, or whatever, whatever the right terminology is.

   17. VBVitalik Buterin1:00:55

       Right. And this is definitely a copied critique. I think my usual answer to this is that, like, proof-of-work is even more of that kind of system.

   18. LFLex Fridman1:01:03

       Yes, exactly.

   19. VBVitalik Buterin1:01:03

       Yeah, 'cause-

   20. LFLex Fridman1:01:04

       I didn't mean it in that statement as a criticism. I think you're exactly right. That's equivalent to proof-of-work is the same kind of thing, but in the proof-of-work you have to also use physical resources. (laughs)

   21. VBVitalik Buterin1:01:15

       Yes. And, uh, burn computers and burn trees, and all of that stuff.

   22. LFLex Fridman1:01:19

       Is there, um, a way to mess with the system over the proof of, um, proof-of-stake?

   23. VBVitalik Buterin1:01:25

       There is, but you will, once again, need to have a, a very large portion of all the coins that are locked in the system to do anything bad.

   24. LFLex Fridman1:01:31

       Got it. S- yeah, and just to that, maybe take a small tangent. One of the criticisms of cryptocurrency is the fact, uh, that it gives... for the proof-of-work mechanism-

   25. VBVitalik Buterin1:01:41

       Mm-hmm.

   26. LFLex Fridman1:01:42

       ... you have to use so much energy in the world.

   27. VBVitalik Buterin1:01:44

       Yes.

   28. LFLex Fridman1:01:44

       Uh, is, uh, one of the motivations of, uh, proof-of-stake is to move away from this?

   29. VBVitalik Buterin1:01:49

       Definitely.

   30. LFLex Fridman1:01:50

       Like, what- what's your sense of the... Uh, maybe I'm just under-informed.
9. 1:02:12 – 1:13:09

   Ethereum 2.0

   1. VBVitalik Buterin1:02:12

   2. LFLex Fridman1:02:12

      I've heard you talk about, uh, Ethereum 2.0. So what's the, what's the dream of Ethereum 2.0?

   3. VBVitalik Buterin1:02:18

      Mm-hmm.

   4. LFLex Fridman1:02:18

      What's the, the status of proof-of-stake as the mechanism that-

   5. VBVitalik Buterin1:02:22

      Mm-hmm.

   6. LFLex Fridman1:02:23

      ... Ethereum moves towards? And also, how do you move to a different mechanism of consensus-

   7. VBVitalik Buterin1:02:29

      Sure.

   8. LFLex Fridman1:02:29

      ... with- withi- within a cryptocurrency?

   9. VBVitalik Buterin1:02:31

      So Ethereum 2.0 is a collection of, uh, major upgrades that we've wanted to do to Ethereum for quite some time. The two big ones, uh, one is, uh, proof-of-stake, and the other is, uh, we call sharding. Um, sharding solves, uh, another problem with blockchains, which is, uh, scalability. And what sharding does is it basically says instead of every participant in the network having to personally download and verify every transaction, every participant in the network only downloads and verifies a small portion of transactions.

   10. LFLex Fridman1:03:02

       Mm-hmm.

   11. VBVitalik Buterin1:03:02

       And then you kind of randomly distribute who gets how much work, um, and because the d- sh- how the distribution is random, it still has the property that you need a large portion of the entire network to corrupt what's, uh, going on inside of any shard, but the system is still, uh, kind of very redundant and very secure.

   12. LFLex Fridman1:03:22

       That's brilliant. How- how hard is that to implement, and how hard is, uh, proof-of-stake to implement? Like, uh, on a technical level-

   13. VBVitalik Buterin1:03:30

       Yeah.

   14. LFLex Fridman1:03:31

       ... software level?

   15. VBVitalik Buterin1:03:32

       Proof-of-stake and sharding are both challenging. Um, I'd say sharding is a bit more challenging. The reason is that proof-of-stake is kind of just a change to the- how the consensus layer works. Sharding does both that, but it's also a change to the networking layer. Um, the reason is that sharding is kind of pointless if, at the networking layer, you still do what you do today, which is you kind of gossip everything, which means that if someone publishes something, every other node and the client hears it, like, f- from, uh, on the networking layer. And so instead, we have to have kind of sub-networks, and the ability to quickly switch between sub-networks, and have those sub-networks talk to each other. And this is all doable, but it's a, uh, more complex architecture, and it's definitely the sort of thing that has not yet been done in cryptocurrency.

   16. LFLex Fridman1:04:15

       So most, most of the networking layer in, uh, cryptocurrency is you're shouting, like, you're like broadcasting-

   17. VBVitalik Buterin1:04:21

       Yes.

   18. LFLex Fridman1:04:21

       ... messages. And this is more like ad hoc networks. Like, you're-

   19. VBVitalik Buterin1:04:25

       Yeah. You're shouting within smaller groups.

   20. LFLex Fridman1:04:27

       Smaller group, but do you have like a bunch of sub-no- like-

   21. VBVitalik Buterin1:04:30

       Exactly.

   22. LFLex Fridman1:04:31

       ... and you have to switch betwe- Oh, man. I'd love to see the... Uh, so it's a beautiful idea-

   23. VBVitalik Buterin1:04:37

       Mm-hmm.

   24. LFLex Fridman1:04:37

       ... uh, so from a graph theoretical perspective, but just the software that-

   25. VBVitalik Buterin1:04:42

       (laughs) Yeah.

   26. LFLex Fridman1:04:42

       Like, who's responsible? Is, uh, Ethereum project, like the people involved, would they be implementing? Like, what's the actual... You know, this is like legit software engineering. Uh, who, like how does that work? How do people collaborate, build that kind of project? Is, is this like almost, um, like is there a, a, a software engineering lead? Is there-

   27. VBVitalik Buterin1:05:04

       Mm-hmm.

   28. LFLex Fridman1:05:04

       ... is it, is it a legit almost like large-scale open source project?

   29. VBVitalik Buterin1:05:08

       There is, yeah. So, um, we have, uh, someone named, uh, Danny Ryan on our team who has just been brilliant and great all around. And, and he is a kind of de facto kind of development coordinator, I guess. It's like you have to invent job titles for this stuff, right?

   30. LFLex Fridman1:05:25

       Yes. (laughs)
10. 1:13:09 – 1:16:59

    Beautiful ideas in Ethereum

    1. LFLex Fridman1:13:09

       Uh, apologize for the romanticized question, but what to you are some or the most beautiful idea in the world of Ethereum? Just something, uh, surprising, something beautiful, something powerful. Hmm.

    2. VBVitalik Buterin1:13:23

       Yeah, I mean, I think the fact that money can just emerge out of a database if enough people believe in it, I think-

    3. LFLex Fridman1:13:29

       (laughs)

    4. VBVitalik Buterin1:13:30

       ... is definitely one of those things that's up there. Um-

    5. LFLex Fridman1:13:33

       (laughs)

    6. VBVitalik Buterin1:13:34

       I think one of the things that I really love about Ethereum is also this concept of composability. So this is the idea that, like, if I build an application on top of Ethereum, then you can build an application that talks to my application, and you don't even need my permission. You don't e- you don't even need to talk to me, right? So one really fun example of this is there was this kind of game on Ethereum, uh, called CryptoKitties that just involved kind of breeding digital cats.

    7. LFLex Fridman1:14:00

       Yes.

    8. VBVitalik Buterin1:14:01

       And someone else created a game called CryptoDragons where the way you play CryptoDragons is you have a dragon and you have to feed it CryptoKitties. Um-

    9. LFLex Fridman1:14:10

       (laughs)

    10. VBVitalik Buterin1:14:11

        And they just, uh, created the whole thing just, like, as an Ethereum contract that you would send these, uh, uh, these tokens that are defined by this other Ethereum contract. And for the interoperability to happen, like the projects didn't, don't really need to... Like the teams don't really need to talk to each other. You just kind of interface with the existing program. So it's-

    11. LFLex Fridman1:14:35

        So it's arbitrarily composable in this kind of way, so you have different, uh, different groups-

    12. VBVitalik Buterin1:14:39

        Yeah.

    13. LFLex Fridman1:14:39

        ... that could be working. So you could see it scaling to just o- outside of dragons and kitties, it could be, you could build, like, entire ecosystems of software-

    14. VBVitalik Buterin1:14:49

        Yeah.

    15. LFLex Fridman1:14:49

        ... in this kind of way.

    16. VBVitalik Buterin1:14:49

        And in the, I mean, especially in the, the decentralized finance, uh, space that's been, uh, popping up the last two years, there has been a huge amount of, uh, of really interesting things happen as a result of this.

    17. LFLex Fridman1:15:01

        Is it a particular kind of, like, financial applications kind of thing?

    18. VBVitalik Buterin1:15:05

        Yeah, I mean, there's, like, stable coins. So this is a kind of tokens that retain, uh, value, um, equal to $1 but they're kind of backed by crypt- uh, cryptocurrency. Um, then there's decentralized exchanges. Um, so when, as far as the decentralized exchanges goes, um, there's this, uh, kind of, um, really interesting construction that, um, has existed for about one, one and a half years now called Uniswap.

    19. LFLex Fridman1:15:32

        Mm-hmm.

    20. VBVitalik Buterin1:15:32

        Uh, so what Uniswap is, it's a smart contract that holds, um, balances of, uh, two tokens. We'll call them token A and token B. And it maintains an invariance that the balance of token A multiplied by the balance of token B has to equal the same value.

    21. LFLex Fridman1:15:47

        Mm-hmm.

    22. VBVitalik Buterin1:15:47

        And so the way that you trade against the thing is basically, like you have this kind of curve, you know, like X times Y equals K, and yeah, before you trade, it's at some points on the curve. After you trade, you just like pick some diff- any d- any other points on the curve, and then whatever the delta X is, that's the amount of A tokens you provide. Whatever the delta Y is, that's the amount of B tokens you get, or vice versa. And that's just... And then kind of the slope, uh, um, add the current, uh, points on the curve kind of is the price. Um, and so that just is the whole thing. And that just allows you to kind of have this exchange for tokens, and even if there's very few participants. And the whole thing is just like so simple, and it's just very easy to set up, very easy to participate in, and it just provides so much value to people. So m-

    23. LFLex Fridman1:16:41

        A- a- and uh, the uh, the fundamental, the, the distributed application infrastructure a- uh, allows that somehow.

    24. VBVitalik Buterin1:16:49

        Yes. So this is a smart contract meeting. This is all a computer program that's just running on Ethereum.

    25. LFLex Fridman1:16:55

        Got it. Smart contracts too are just fascinating.

    26. VBVitalik Buterin1:16:58

        They are. (laughs)

11. 1:16:59 – 1:22:06

    Future of cryptocurrency

    1. VBVitalik Buterin1:16:59

    2. LFLex Fridman1:16:59

       (laughs) Okay. Do you think cryptocurrency may become the main currency in the world one day? So do you... Where, where do you think we're headed in terms of the role of currency, the structure type-

    3. VBVitalik Buterin1:17:10

       Mm-hmm.

    4. LFLex Fridman1:17:10

       ... of currency in the world?

    5. VBVitalik Buterin1:17:12

       I mean, I definitely expect, um, fiat currencies to continue to exist and continue to be strong. And I definitely expect kind of fiat currencies to also digitize in their own way over the next couple of decades.

    6. LFLex Fridman1:17:25

       What's fiat currency, by the way?

    7. VBVitalik Buterin1:17:26

       Oh, just like things like US dollars and like dollars and euros and yen and these other things.

    8. LFLex Fridman1:17:32

       And they're sort of backed by governments.

    9. VBVitalik Buterin1:17:34

       Yes. But I also expect kind of cryptocurrencies to play this kind of important role in just making sure that people always have an alternative if, uh, fiat currencies start breaking. So like if... Or if you're in, you know, some kind of very high inflation place like Venezuela, for example, or if, uh, your, um, uh, country just kind of gets cut off, uh, from... Like, um, cut off from other financial systems because of like something the banks do, like if any kind of... If there's even like some major trade disruption or, or something worse happens, then like cryptocurrencies are the sort of thing that just because of their kind of global neutrality, they're just kind of always there and you can keep using them.

    10. LFLex Fridman1:18:22

        It's interesting that you're quite humble about the possibilities of the future of cryptocurrency.

    11. VBVitalik Buterin1:18:27

        Mm-hmm.

    12. LFLex Fridman1:18:27

        You, you don't think there's a possible future where, uh, it-

    13. VBVitalik Buterin1:18:31

        Mm-hmm.

    14. LFLex Fridman1:18:31

        ... becomes the main set of currency because it feels-

    15. VBVitalik Buterin1:18:35

        Eh.

    16. LFLex Fridman1:18:35

        ... like fiat... It feels like-

    17. VBVitalik Buterin1:18:36

        Mm-hmm.

    18. LFLex Fridman1:18:37

        ... the centralized-... control by governments of currencies limiting somehow.

    19. VBVitalik Buterin1:18:42

        Mm-hmm.

    20. LFLex Fridman1:18:42

        Maybe in my naïve, utopian-

    21. VBVitalik Buterin1:18:44

        Yeah.

    22. LFLex Fridman1:18:44

        ... view of the world.

    23. VBVitalik Buterin1:18:46

        It's, uh, I mean, it's definitely very possible. Uh, I mean, I think like for cryptocurrencies being the main y- form of, of, uh, value to kind of work well, like you do need to have, uh, some f- um, much more price stability than they have today. And I mean, there are now stable coins, and there are kind of crypto- cryptocurrencies that try to be more stable than kind of existing things like Bitcoin and Ether, but I mean, that just is, uh, to me, the kind of the main challenge.

    24. LFLex Fridman1:19:18

        Do you think- Oh, that's ... Do you think that's a characteristic of this just being the early days? I mean, it's such a young concept. The 10 years is nothing in the history of money.

    25. VBVitalik Buterin1:19:27

        Yeah, I mean, I think it's a combination of two things, right? One is, um, it's, uh, uh, it's still early days, but the other is a kind of more durable and a kind of economic problem, which is that like demand for currency is volatile, right, because of like recessions, booms, changes to technology, lots of things, and if people's demand for how much currency they want to hold changes. And if you have a currency that has a fixed supply, then the change in demand has to be entirely expressed as a change in value of the currency.

    26. LFLex Fridman1:20:00

        Mm-hmm.

    27. VBVitalik Buterin1:20:00

        And so what that means is that kind of the volatility of demand becomes entirely translated into volatility and kind of prices of things denominated in that currency. But if you have a currency where instead the supply can change, and so the supply can kind of go up when there's more demand, then you have the supply kind of absorbing more of that volatility, and so the price of the currency would absorb less of the volatility.

    28. LFLex Fridman1:20:24

        On that topic, so Bitcoin does have a limited suppl- a specific-

    29. VBVitalik Buterin1:20:28

        Mm-hmm.

    30. LFLex Fridman1:20:28

        ... fixed supply.
12. 1:22:06 – 1:24:28

    Cryptocurrency resources and people to follow

    1. VBVitalik Buterin1:22:06

    2. LFLex Fridman1:22:06

       That's fascinating. Okay. This (laughs) this, this world is awesome technically.

    3. VBVitalik Buterin1:22:09

       (laughs)

    4. LFLex Fridman1:22:09

       Just from a scientific perspective, it's an awesome world, uh, that I, I often don't see from an outsider's perspective. What I often see is kind of, uh, maybe hype and a little bit-

    5. VBVitalik Buterin1:22:20

       Mm-hmm.

    6. LFLex Fridman1:22:20

       ... if I may say so like charlatanism.

    7. VBVitalik Buterin1:22:23

       Mm-hmm.

    8. LFLex Fridman1:22:24

       Uh, and you don't often see, at least from an outsider's perspective, the beautiful science of it and the-

    9. VBVitalik Buterin1:22:29

       Yeah.

    10. LFLex Fridman1:22:29

        ... engineering of it.

    11. VBVitalik Buterin1:22:30

        Mm-hmm.

    12. LFLex Fridman1:22:30

        May- maybe is there a comment you can make of who to follow, how to learn about this world without being, um, interrupted by the charlatans and the hype people in this space?

    13. VBVitalik Buterin1:22:47

        I think you do need to just know the specific kind of just people to follow. Like there's, I mean, there's all the kind of the cryptographers and the researchers, and then there's just like even just the Ethereum research crew, like myself and Danny Justin, and then the other people W- are... And then any of the academic cryptographers and I can, uh, you know, like, before, um, um, this today I was at Stanford, and, uh, Stanford has the Center for Blockchain Research and with Dan Boneh, that's then really a famous and great cryptographer, um, is, uh, you know, for running it, and there is a lot of other people there. And there's people working on like zero knowledge proofs, uh, for example. And, um, Zuko from, uh, Zcash is one other person that I, uh, kind of respect. So I think if you follow the technical-

    14. LFLex Fridman1:23:40

        Just crawl along that-

    15. VBVitalik Buterin1:23:42

        Yeah, yeah, you just gotta craw-

    16. LFLex Fridman1:23:42

        ... uh, start with the Ethereum group and then look at the academics, Dan Boneh and so on, and then-

    17. VBVitalik Buterin1:23:46

        Yeah.

    18. LFLex Fridman1:23:47

        ... just cautiously expand the network of people you follow.

    19. VBVitalik Buterin1:23:50

        Yeah, exactly. And like if someone seems too s- too self-promotional, then just-

    20. LFLex Fridman1:23:55

        Yeah, it's-

    21. VBVitalik Buterin1:23:55

        ... like remove them.

    22. LFLex Fridman1:23:56

        Is there books that are ... So th- there's these white papers, and we just discussed about sh-

    23. VBVitalik Buterin1:24:02

        Yeah.

    24. LFLex Fridman1:24:02

        ... about ideas being condensed into really small parts.

    25. VBVitalik Buterin1:24:05

        There are.

    26. LFLex Fridman1:24:06

        Is, is there books that are emerging that are kind of good, uh, introductory material for crypto?

    27. VBVitalik Buterin1:24:11

        So for historical ones, I mean, there's like Nathaniel Popper's Digital Gold, which is just about the history of Bitcoin. There's like one, I think Matthew Leising announced that there's one about the history of Ethereum. Um, for technical ones, I mean there's Andreas Antonopoulos' Mastering (laughs) Ethereum.

13. 1:24:28 – 1:27:27

    Role of governments

    1. VBVitalik Buterin1:24:28

Episode duration: 1:35:03