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

Lex Fridman 0:00 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.

Lex Fridman 4:44 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-

Vitalik Buterin 4:54 Mm-hmm.

Lex Fridman 4:54 ... and the, uh, mystery of Satoshi Nakamoto.

Vitalik Buterin 4:57 Mm-hmm.

Lex Fridman 4:58 You gave a talk that started with sort of asking the question, what did, uh, Satoshi Nakamoto actually invent?

Vitalik Buterin 5:05 Mm-hmm.

Lex Fridman 5:05 Uh, maybe you could say, who is Satoshi Nakamoto and what did he invent?

Vitalik Buterin 5:10 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)

Lex Fridman 6:13 So in, in 2008, was it, so the white paper was the first ... Do you know-

Vitalik Buterin 6:17 Yes.

Lex Fridman 6:17 ... if the white paper was the first time the name was, actually appears, Satoshi Nakamoto?

Vitalik Buterin 6:22 I believe so.

Lex Fridman 6:23 So how is it possible that the creator of such a impactful project remains anonymous?

Vitalik Buterin 6:31 That's a tough question. And-

Lex Fridman 6:34 There's no similarity to it in the history of technology, as far as I'm aware.

Vitalik Buterin 6:38 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-

Lex Fridman 6:54 Who is Hal Finney, maybe you could say?

Vitalik Buterin 6:55 Uh, he is, uh, one of the people in the kind of early cypherpunk community. He was, uh-

Lex Fridman 7:01 So was he a computer scientist, just one of them?

Vitalik Buterin 7:03 Yeah, computer scientists, cryptographers, people interested in, uh, like, technology, internet freedom, like those kinds of topics.

Lex Fridman 7:14 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?

Vitalik Buterin 7:21 Yes. The first transaction of Bitcoin was between Satoshi and Hal Finney.

Lex Fridman 7:26 Do you think he knew who Satoshi was? If he wasn't-

Vitalik Buterin 7:28 If he wasn't Satoshi, probably no.

Lex Fridman 7:31 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?

Vitalik Buterin 7:44 Hmm.

Lex Fridman 7:45 Like, if we were to think about it, 'cause you and I just met now.

Vitalik Buterin 7:49 Mm-hmm.

Lex Fridman 7:49 There's a, there's a depth of knowledge that w- we now have about each other that's like physical. Like-

Vitalik Buterin 7:55 That's true.

Lex Fridman 7:55 ... my vision system is able to recognize you.

Vitalik Buterin 7:58 Mm-hmm.

Lex Fridman 7:58 I can also verify your identity of uniqueness, like-

Vitalik Buterin 8:02 Yep, that's-

Lex Fridman 8:03 It's, like it's very hard to fake you being you.

Vitalik Buterin 8:05 Yes.

Lex Fridman 8:05 Uh, so the internet, (laughs) the internet has a fundamentally different quality to it, which is just fascinating. Can you maybe talk-

Vitalik Buterin 8:12 Yeah, no, this is definitely interesting, as, uh, I definitely just know a lot of people just by their internet handles.

Lex Fridman 8:20 Yeah.

Vitalik Buterin 8:21 And, like, to me, when I think of them, like I see their internet handles, and, uh, one of them has a kind of profile picture as this, uh, kind of face that's kind of not quite human with a bunch of kind of psychedelic colors in it. And when I visualize him, I can just visualize that.

Lex Fridman 8:37 That.

Vitalik Buterin 8:37 (laughs)

Lex Fridman 8:37 Not an actual face.

Vitalik Buterin 8:39 Yeah.

Lex Fridman 8:40 You are the creator of the second, well at least currently the second most popular cryptocurrency-

Vitalik Buterin 8:46 Mm-hmm.

Lex Fridman 8:46 ... uh, Ethereum. So on this topic, if we just stick on Satoshi Nakamoto for, for a little bit longer-

Vitalik Buterin 8:52 Mm-hmm.

Lex Fridman 8:52 ... you may be the most qualified person to speak to the psychology of this anonymity that we're talking about.

Vitalik Buterin 8:58 Mm.

Lex Fridman 8:59 Like, your identity is known.

Vitalik Buterin 9:01 Yes.

Lex Fridman 9:01 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-

Vitalik Buterin 9:13 Mm-hmm.

Lex Fridman 9:13 ... Satoshi Nakamoto, is there something interesting there? Or is it just-

Vitalik Buterin 9:17 It def-

Lex Fridman 9:17 ... a peculiar quirk of him?

Vitalik Buterin 9:20 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-

Lex Fridman 9:31 Okay.

Vitalik Buterin 9:31 ... 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.

Lex Fridman 10:30 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?

Vitalik Buterin 10:44 Mm-hmm.

Lex Fridman 10:44 I mean, there's a very large community of developers-

Vitalik Buterin 10:46 Mm-hmm.

Lex Fridman 10:46 ... but nevertheless-

Vitalik Buterin 10:48 Yeah.

Lex Fridman 10:48 ... uh, d- is there like a burden associated with that?

Vitalik Buterin 10:52 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

Vitalik Buterin 11:31 ...

Lex Fridman 11:31 So if you look at like the most-

Vitalik Buterin 11:33 Uh-huh.

Lex Fridman 11:33 ... fundamentally successful open source projects-

Vitalik Buterin 11:36 Uh-huh.

Lex Fridman 11:37 ... it seems that-

Vitalik Buterin 11:38 Mm-hmm.

Lex Fridman 11:38 ... it's like a sad reality when I think about it-

Vitalik Buterin 11:41 Uh-huh.

Lex Fridman 11:41 ... is it seems to be that one person is a crucial contributor often. If you look at Linus from-

Vitalik Buterin 11:47 Mm-hmm.

Lex Fridman 11:48 ... from, uh, for the, for Linux, for the kernel.

Vitalik Buterin 11:51 Yep, that is possible, and I'm definitely not planning to disappear. (laughs)

Lex Fridman 11:55 (laughs) That's an interesting, um, tension-

Vitalik Buterin 11:59 Mm-hmm.

Lex Fridman 11:59 ... that, uh, projects like this kind of desire a single entity, and yet they're fundamentally distributed.

Vitalik Buterin 12:07 Mm-hmm.

Lex Fridman 12:08 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?

Vitalik Buterin 12:17 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-

Lex Fridman 12:30 What kind of leader are you, would you say?

Vitalik Buterin 12:32 You know, in these days, um...

Lex Fridman 12:35 (laughs)

Vitalik Buterin 12:35 I actually (laughs) a bit more in the high p- in the high priest direction than before.

Lex Fridman 12:40 Yeah.

Vitalik Buterin 12:40 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

Vitalik Buterin 13:04 it.

Lex Fridman 13:05 So let's ask the high philosophical question-

Vitalik Buterin 13:08 Sure.

Lex Fridman 13:08 ... is about money.

Vitalik Buterin 13:09 Yeah.

Lex Fridman 13:10 What, at the highest level, is money? What is money?

Vitalik Buterin 13:15 It's a kind of game, and-

Lex Fridman 13:16 (laughs)

Vitalik Buterin 13:16 ... 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-

Lex Fridman 13:28 So it's a fair game, hopefully.

Vitalik Buterin 13:30 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...

Lex Fridman 13:43 Yeah.

Vitalik Buterin 13:44 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.

Lex Fridman 13:57 It's useful for the s- storage of wealth.

Vitalik Buterin 14:00 Mm-hmm.

Lex Fridman 14:00 It's useful for the, uh, exchange of value.

Vitalik Buterin 14:03 And it's also useful for denominating future payments, a unit of account.

Lex Fridman 14:09 A uni- a unit of account. So what... If you look at the history of money in human-

Vitalik Buterin 14:14 Mm-hmm.

Lex Fridman 14:14 ... civilization, what... Just a... If, if you're a student of history, like-

Vitalik Buterin 14:19 Mm-hmm.

Lex Fridman 14:19 ... 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-

Vitalik Buterin 14:31 Mm-hmm.

Lex Fridman 14:31 ... you think about?

Vitalik Buterin 14:33 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...

Lex Fridman 15:20 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.

Vitalik Buterin 15:27 Mm-hmm.

Lex Fridman 15:29 What... Is that, like, fascinating to you that money can exist without being backed by something physical?

Vitalik Buterin 15:35 It definitely is. It's-

Lex Fridman 15:36 Like, what do you make of that? (laughs)

Vitalik Buterin 15:38 (laughs)

Lex Fridman 15:38 Like, how, how is that possible? Is that stable? If we look at the future of human civilization, is it possible to have money at the large scale at such a hugely productive and rich societies-

Vitalik Buterin 15:50 Mm-hmm.

Lex Fridman 15:50 ... be able to operate successfully without money being backed by anything physical?

Vitalik Buterin 15:55 I feel like the interesting thing about the 21st century especially is that, you know, a lot of the important valuable things are not backed by anything.

Lex Fridman 16:04 (laughs)

Vitalik Buterin 16:04 Like, if you look at, like, tech companies, for example, like something like Twitter, right?

Lex Fridman 16:08 Yes.

Vitalik Buterin 16:09 Like, you could theoretically imagine that if all of the employees wanted to, they could kind of come together, they would quit, and, you know, start working on Twitter 2.0, and then the, uh, value of t- um, and just kind of build the exact, the, the exact same product or pos- possibly build a better product and then just, uh, kind of continue on from there, and the original, um, the original Twitter would kind of just not have people left anymore, right?

Lex Fridman 16:38 Right.

Vitalik Buterin 16:38 Like, the, there is theoretically kind of code and, like, IP that's owned by the company, but in reality, like, good programmers could probably reado- rewrite all that stuff in three months. So the, um, like, the reason why the thing has value is just kind of network effects and coordination problems, right? Like, these, uh, employees in reality aren't going to switch all at once, and also the users aren't a- um, all going to switch, um, at once because it's just difficult for them to switch at once. And so there's these kind of meta-stable kind of equilibria in interactions between thousands of millions of people that are just actually quite sticky even though if you try to kind of assume that everyone's a perfectly rational and kind of perfectly slippery spherical cow, they don't seem to exist at all.

Lex Fridman 17:27 This, that stickiness, do you have a sense or grasp of the sort of the fun- fundamental dynam- like, the physics of that stickiness? It seems to work, but...

Vitalik Buterin 17:37 Mm-hmm.

Lex Fridman 17:38 And I think some of the cryptocurrency ideas kind of rely on it working.

Vitalik Buterin 17:42 Yeah. It's, uh, you know, it's the sort of thing that's definitely been, uh, economically modeled a lot. Like, one of... The kind of analogy of something, uh, similar that, uh, y- you often see in textbooks as, like, what is a, uh, government? Like, if, for exa- like, 80% of, uh, people in a country just, like, tomorrow suddenly had, had the idea that, like-... the laws that are currently the laws in the government, that currently is the government are just people and some o- and some other thing is the government, and they just kind of start acting like it. Then that would kind of become the new reality. And then the question is, well, what happens if kind of between zero and 80 people, are, are, or 80% of people start believing that, and like what is... Uh, the thing you als- you see is that if there is one of these kind of switches happening, this kind of revolution, then if you're the first person to join, then like you prob- probably don't have the incentive to do that. But then if you're the 55th per- uh, percentile person to join, then it suddenly becomes quite safe to. And so it, it definitely is the sort of thing that you can kind of try to analyze and understand mathematically. But one of the kind of results is that the sort of (makes sound) like when the switch happens definitely can be chaotic sometimes.

Lex Fridman 19:09 Yeah, but still like-

Vitalik Buterin 19:10 Mm-hmm.

Lex Fridman 19:10 ... to me the idea that, uh, the network effects, the, the fact that human beings at a scale of like millions-

Vitalik Buterin 19:16 Yep.

Lex Fridman 19:16 ... billions-

Vitalik Buterin 19:16 Mm-hmm.

Lex Fridman 19:17 ... can share even the idea of currency.

Vitalik Buterin 19:20 Mm-hmm.

Lex Fridman 19:20 Like-

Vitalik Buterin 19:21 Yep.

Lex Fridman 19:21 ... all agree, that's just, uh-

Vitalik Buterin 19:23 Mm-hmm.

Lex Fridman 19:23 I know economics can model it. I'm a skeptic on the economic an- uh, it's like, uh, so my, my favorite sort of field, maybe recreationally, psychology-

Vitalik Buterin 19:32 Yep.

Lex Fridman 19:32 ... is trying to understand human behavior.

Vitalik Buterin 19:34 Mm-hmm.

Lex Fridman 19:35 And I, I think sometimes people just kind of pretend that they can have a grasp on human behavior.

Vitalik Buterin 19:39 Mm-hmm.

Lex Fridman 19:40 Even though we, it's such a messy space that all the models, the psychology or economics, those different perspectives on human behavior-

Vitalik Buterin 19:47 Mm-hmm.

Lex Fridman 19:47 ... can have are, are difficult. It's difficult to know how much that's wishful thinking and how much it is actually getting to the core of, uh, understanding human behavior.

Vitalik Buterin 19:57 Mm-hmm.

Lex Fridman 19:58 But on that idea, what do you think is the role of money in human motivation? So-

Vitalik Buterin 20:06 Mm-hmm.

Lex Fridman 20:06 ... do, do you think money f- from an economics perspective, from a psychology perspective is core to, like, human desires?

Vitalik Buterin 20:18 Money is definitely very far from the only motivator. Um, it is a big motivator, and it's, uh, one of the closest things you have to a universal motivator, I think, because ultimately in like almost any person in the world if you ask them to do something, like they'll be more inclined to do it if you also offer some m- uh, uh, offer them money, right? And that's, uh, like there's definitely many cases where people will do things other than things that maximize how much money they have, and that happens all the time, but like though a lot of those other things are kind of but- much more specific to kind of who that person is, and of what their situation is, the relationship between the motive and the action, and these other things.

Lex Fridman 21:02 What do you think is in interplay with the other motivator, from like Nietzsche perspective-

Vitalik Buterin 21:06 Mm.

Lex Fridman 21:06 ... is power.

Vitalik Buterin 21:07 Mm.

Lex Fridman 21:07 D- do you think money equals power? Do you think those are conflicting ideas? Do you think... I mean, th- that's the-

Vitalik Buterin 21:13 Mm.

Lex Fridman 21:13 ... one of the ideas that decentralized currency, decentralized applications are looking at-

Vitalik Buterin 21:18 Mm-hmm.

Lex Fridman 21:19 ... is, uh, who holds the power.

Vitalik Buterin 21:20 Yeah. M- money is definitely a kind of power, and there's definitely people who want money because it gives them power. And then even if m- money doesn't seem to kind of explicitly be about money, a lot of, uh, things that people spend money on are ultimately about kind of social status of some kind. Um, so I mean, I definitely view those two things as kind of interplaying. And then there's also money as, uh, just a way of, uh, like measuring how successful you are like as a scoreboard, right? So this kind of gets back to the game, you know, like if, uh, you have four billion dollars, then, uh, the main benefit you get from going, uh, or one of the big benefits you get from going up to six billion dollars is that now instead of, uh, being below the guy who has five, you're above the guy who has five.

Lex Fridman 22:13 S- so you think money could be kind of, uh, in the game of life, it's also a measure of self-worth. It's like how we-

Vitalik Buterin 22:21 It's definitely how-

Lex Fridman 22:23 ... how we kind of-

Vitalik Buterin 22:23 ... uh, how a lot of people perceive ite.

Lex Fridman 22:25 Define ourselves in-

Vitalik Buterin 22:26 Yeah.

Lex Fridman 22:26 ... the hierarchy of, uh-

Vitalik Buterin 22:27 Yeah.

Lex Fridman 22:27 ... society.

Vitalik Buterin 22:27 And I'm not, yeah, not saying it's kind of a healthy thing that people per- uh, define their self-worth as money 'cause it's definitely kind of far from a, uh, perfect indicator of, like, how much you, like, value you provide to society or anything like this. But I, I definitely think that like as a matter of kind of current practice, a bunch of people do feel that way.

Lex Fridman 22:52 So what does utopia from an economic perspective look like to you?

Vitalik Buterin 22:57 Hmm.

Lex Fridman 22:57 What does a perfect world look like?

Vitalik Buterin 23:00 I guess like the economist's utopia would be one where kind of everything is sort of incentive-aligned in the se- um, in the sense that there aren't kind of conflicts between what satisfies your goals and kind of what is, uh, good for kind of everyone in the wor- um, in the world as a whole.

Lex Fridman 23:23 What do you think that would, um, look like? Does, does that mean there's still poor people and rich people, there's still i- income inequality? Do you think sort of, uh, Marxist ideas are strong? Do you think sort of ideas of, uh, objectivism-

Vitalik Buterin 23:40 Mm-hmm.

Lex Fridman 23:41 ... uh, like where the market rules is strong. Like what... Is there s- is there different economic philosophies that just seem to be reflective what utopia would be?

Vitalik Buterin 23:52 No, I definitely think that e- existing economic philosophies do end up kind of systematically kind of deviating from the utopia in a lot of ways.

Lex Fridman 24:03 Yeah.

Vitalik Buterin 24:03 Like-One of the big things I t- talk about, for example, is public goods, right? And public goods are e- especially important on the internet, right? Y- yes, uh, like the idea is with kind of money as, uh, this game where, you know, I lose a few coin, uh, a few coins and you gain the same number of coins, is that this usually happens in a trade where I lose some money, you gain some money, you, um, lose a sandwich and I gain a sandwich. (laughs)

Lex Fridman 24:27 (laughs) Yeah.

Vitalik Buterin 24:27 Um, and, uh, this, uh, kind of model works really well when the thing that we're using money to incentivize is kind of private goods, right? Things that you provide to one person, where the benefit comes to one person. But the... like, on the internet especially, but also many, many contexts kind of off the internet, there's actions that kind of individuals or groups can take where instead of the benefit going to one person, the benefit just goes to many people at the same time, and you can't control who the benefit goes to, right? So for example, this podcast, you know, we publish it, and when it's published, uh, you don't have any fine-grained control over, like, oh, these 38,000 people can watch it, and then, like, these other 29,000 people can't.

Lex Fridman 25:16 Yeah.

Vitalik Buterin 25:16 It's like once the number goes high enough, then, you know, people will just, like, copy it. And then when I write articles on a blog, then they're, they're just, like, free for everyone, and that stuff's even harder to prevent anyone from copying. So a- aside from that, things like, you know, scientific research, for example, and even taking more pedestrian examples, like climate change mitigation would be a big one. Um, uh, so there's a lot of things in the world where y- you have these kind of individual actions with enough concentrated costs and distributed benefits, and money as a point system does not do a good job of, um, encouraging these things. And one of the kind of other things even, kind of tangentially connected to crypto but kind of theoretically outside of it that I work on is this sort of mechanism called quadratic funding.

Lex Fridman 26:08 Mm-hmm.

Vitalik Buterin 26:09 Um, and the way to think about it is, kind of imagine a point system where y- if, uh, like, if one person gives, uh, coin, um, gives, uh, coins to one other person, then it works the same way as money. But if multiple people, uh, d- give coins to one person, and they do so anonymously, so it's, uh, kind of not in consideration for a specific service to that person themselves-

Lex Fridman 26:34 Mm-hmm.

Vitalik Buterin 26:34 ... uh, then the number of coins, uh, received by that person is kind of greater than just the sum of the number of coins that have given by those different people. Um, so the actual formula is you take the square root of the amount that each person gave, then you add all the square roots, and then you kind of square the sum.

Lex Fridman 26:52 Square the sum.

Vitalik Buterin 26:52 Yeah, and then you give that. And the idea here would basically be that if, let's say, for example, you just started going off and kind of planting a lot of trees, and there's a bunch of people that are really happy that you're planting trees and that, so they go and all kind of throw a coin, um, your way, then the... Like, there is... Like, basically, the fact that kind of you get more than the sum, you get this kind of square of sum of these, of a, of square roots, some of these tiny amounts, is, um, that this actually kind of compensates for the tragedy of the commons, right? And there's, there's even this kind of mathematical proof that it sort of optimally compensates for it.

Lex Fridman 27:32 What is the tragedy of the commons?

Vitalik Buterin 27:33 Um, this is just this idea that, like, if there is this, uh, situation where there's some public good that lots of people benefit from, then no individual person wants to contribute to it, because if they contribute, they only get a small part of the benefit from their contribution, but they pay the full cost of their contribution.

Lex Fridman 27:54 In which context does this, um... Sorry, w- what is the term quadratic what?

Vitalik Buterin 27:58 Quadratic funding is the mechanism.

Lex Fridman 28:00 Quadratic funding.

Vitalik Buterin 28:00 Yeah.

Lex Fridman 28:01 Like, what's... In which context does this mechanism-

Vitalik Buterin 28:03 Mm-hmm.

Lex Fridman 28:04 ... useful? So-

Vitalik Buterin 28:06 Yeah.

Lex Fridman 28:06 O- obviously you said to, to, to combat the tragedy of the commons, but-

Vitalik Buterin 28:10 Yeah.

Lex Fridman 28:10 ... in which context do you see it as useful actually, practically speaking?

Vitalik Buterin 28:13 Yeah, theoretically public goods in general, right? So like-

Lex Fridman 28:16 Like services? Like, what, what are we, what are we talking about? What's a public good?

Vitalik Buterin 28:19 Yeah.

Lex Fridman 28:20 What-

Vitalik Buterin 28:20 So within the, um, Ethereum ecosystem, for example, like, we've actually, uh, tried using this mechanism. I, uh, wrote a couple of articles about this on vitalik.ca, where I go through some of the most recent rounds, and it's been really interesting. Um, some of the top ones that people supported, there were, um, things like just online user interfaces that make it easier for people to interact with Ethereum. Um, there was, uh, documentation, there were podcasts, um, there were kind of software clients, like kind of implementations of the Ethereum protocol, of privacy tools. Just, like, lots of things that are useful to lots of people.

Lex Fridman 29:09 When a lot of people are contributing f- like, funding a particular-

Vitalik Buterin 29:12 Mm-hmm.

Lex Fridman 29:13 ... particular entity.

Vitalik Buterin 29:14 Yeah.

Lex Fridman 29:14 Uh, that's really, that's really interesting. Is there something special about the quadratic, the, the summing of the square roots and taking the square?

Vitalik Buterin 29:21 Yeah. Uh, so another way to think about it is, like, imagine if N people each give a dollar, then the person gets N squared, right?

Lex Fridman 29:29 Right.

Vitalik Buterin 29:29 Um, and, and so each individual person's, uh, contribution gets multiplied by N, right? Because you have N people.

Lex Fridman 29:36 Yeah.

Vitalik Buterin 29:36 Um, and so that kind of perfectly compensates for the kind, like kind of N to one, uh, tragedy of the commons.

Lex Fridman 29:42 I just wonder if the, the squared part is somehow fundamental.

Vitalik Buterin 29:45 Yeah. No, i- it is. Um-

Lex Fridman 29:46 Interesting.

Vitalik Buterin 29:47 And I'd, uh, recommend you go to... On vitalik.ca, I have this article called Quadratic Payments: A Primer.

Lex Fridman 29:54 Mm-hmm.

Vitalik Buterin 29:55 And I highly recommend it. It's kind of at least my attempt so far kind of explaining the intuition behind this.

Lex Fridman 30:01 Intuition.

Vitalik Buterin 30:02 Mm-hmm.

Lex Fridman 30:02 So if we could, can we go to the very basics?

Vitalik Buterin 30:06 Mm-hmm.

Lex Fridman 30:07 What is...... the blockchain, or perhaps we might even start-

Vitalik Buterin 30:12 Mm-hmm.

Lex Fridman 30:12 ... at the, uh, the, the Byzantine Generals Problem, the Byzantine fault tolerance in general, that I, I, uh, Bitcoin was-

Vitalik Buterin 30:22 Mm-hmm.

Lex Fridman 30:22 ... taking steps to, uh, providing a solution for.

Vitalik Buterin 30:25 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)

Lex Fridman 32:25 Right, right.

Vitalik Buterin 32:25 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-

Lex Fridman 33:05 Yeah.

Vitalik Buterin 33:05 ... it could also be within a, a single system, or- Exactly.

Lex Fridman 33:09 ... almost like a, almost a network of devices, sensors-

Vitalik Buterin 33:11 Yep.

Lex Fridman 33:11 ... so on, like in air-

Vitalik Buterin 33:12 Exactly.

Lex Fridman 33:12 ... airplanes and-

Vitalik Buterin 33:13 Yep.

Lex Fridman 33:13 ... I think, uh, like flight systems in general-

Vitalik Buterin 33:16 Mm-hmm.

Lex Fridman 33:16 ... still use these kinds of ideas.

Vitalik Buterin 33:17 Yep, yep. Um, so-

Lex Fridman 33:19 So that's the '80s.

Vitalik Buterin 33:20 That's the '80s and '90s. Now, the cypherpunks had a different use case in mind, which is-

Lex Fridman 33:24 Uh-huh.

Vitalik Buterin 33:25 ... 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.

Lex Fridman 33:38 Right.

Vitalik Buterin 33:38 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.

Lex Fridman 33:56 Right.

Vitalik Buterin 33:56 And so the clever solution that Satoshi had, this is, uh, kind of going back to the, that presentation I made at Defcon a few months ago where I said that the thing Satoshi invented was cryptoeconomics, um, is this, uh, really neat idea that you can use economic resources to kind of limit identi- how many identities you can get. And the, uh, if there isn't any existing decentralized digital currency, then the only way to do this is with proof of work, right? So with proof of work, the solution is, uh, just, uh, you s- um, publish a solution to a hard, uh, mathematical puzzle that takes some, uh, kind of clearly calculable amount of computational power to solve, you get an identity. Uh, and then you solve, uh, five of those puzzles, you get five identities. And then these are the identities that we run the consensus algorithm between.

Lex Fridman 34:52 So the proof of work mechanism-

Vitalik Buterin 34:53 Mm-hmm.

Lex Fridman 34:54 ... you just described is, like, the fundamental idea proposed in the...

Vitalik Buterin 34:58 Mm-hmm.

Lex Fridman 34:58 ... uh, in the white paper that-

Vitalik Buterin 34:59 Yeah.

Lex Fridman 34:59 ... defines-

Vitalik Buterin 35:00 Mm-hmm.

Lex Fridman 35:00 ... Bitcoin. Uh, what's the idea of consensus that we wish to reach? What, w-

Vitalik Buterin 35:07 Yeah.

Lex Fridman 35:07 ... why is consensus important here? What is consensus?

Vitalik Buterin 35:12 So the goal here in just simple technical terms is to cr- basically kind of wire together a set of a large number c- of computers in such a way that they, uh, kind of pretends to the outside world to be a single computer where that single computer keeps working even if a large portion of the kind of constituent s- the computers that make it up break-

Lex Fridman 35:35 Right.

Vitalik Buterin 35:35 ... and kind of break in arbitrary ways. Like, they could shut off. They could, uh, try to actively break a system. They could do lots of mean things. So the, um, reason why the cypherpunks wanted to do this is because they wanted to run one particular program on this virtual computer, and the one particular program that they wanted to run is just a currency system, right? It's a system that just processes a series of transactions, and for every transaction, it verifies, uh, that the sender has enough coins to pay for the transaction. It verifies that the digital signature is correct. And if the check's passed, then it subtracts the coins from one account and adds the coins to the other account roughly.

Lex Fridman 36:16 So first of all, the- the- the proof of work idea is kinda, I mean, at least to me, seems pretty f- fascinating.

Vitalik Buterin 36:24 It is.

Lex Fridman 36:25 I mean, that's a... e- 'cause it's kind of a revolutionary idea.

Vitalik Buterin 36:27 (coughs)

Lex Fridman 36:28 I mean, is- is it- is it obvious to come up with that you can use, uh... you can exchange basically computational resources for- for identity?

Vitalik Buterin 36:38 Mm-hmm. It's, uh, it actually has a pretty long history. It was, uh, first proposed in a paper by, uh, I think Cynthia Dwork and Nixan Nayor in 1994, I believe, and the original use case was, uh, combating email spam. Uh, so the idea is that if you send an email, you have to send it with a proof of work attached, and, like, this makes it reasonably cheap to send emails to your friends, but it makes it really expensive to send spam to a million people.

Lex Fridman 37:05 Yeah. That's a simple, brilliant idea. So maybe, uh, also taking a step back, so what is the role of blockchain in this? What is blockchain?

Vitalik Buterin 37:16 Sure, so the blockchain... I mean, my way of thinking about it is that it is this, uh, kind of system where you have this kind of one virtual computer created by this- a bunch of these, uh, uh, nodes in the network. Um, and the reason why, uh, y- the term blockchain is used is because the data structure that these systems use, at least so far, is one, uh, where they, um, kind of difference nodes in the network periodically publish blocks, and a block is a kind of list of transactions, uh, together with a pointer, like a hash of a, uh, pre- uh, a previous block that it builds on top of.

Lex Fridman 37:55 Mm-hmm.

Vitalik Buterin 37:56 Um, and so you have a- a series of blocks that- that, uh, nodes in the network create, where each block points to the previous block, and so you have this chain of them.

Lex Fridman 38:05 Is a fault tolerance mechanism built into the idea of blockchain, or is there a lot of possibilities...

Vitalik Buterin 38:12 Yeah.

Lex Fridman 38:12 ... of different ways to make sure there's no funny stuff going on?

Vitalik Buterin 38:16 There are indeed a lot of possibilities. Um, so in a kinda just simple architecture, as I just described, the way the fault tolerance happens is like this, right? So, you have a bunch of nodes, and they're just happily kind of occasionally creating blocks, building on top of, uh, um, each other's, uh, blocks, and let's say you have, uh, kind of one block, we'll call it kind of block one.

Lex Fridman 38:36 Yeah.

Vitalik Buterin 38:36 Um, and then someone else builds, uh, another block on a stool, call it block two. Then we have an attacker. And what the attacker tries to do is the attacker tries to revert block two. And the way they revert block two is instead of doing the thing they're supposed to do, which is build a block on top of block two, they're gonna build another block on top of block one.

Lex Fridman 38:57 Mm-hmm.

Vitalik Buterin 38:57 Um, so you have block one, which has two children, block two and then block two prime. Now, this might sometimes even happen by random chance if, you know, two nodes in the network just happen to create blocks at the same time, and then it would hear a- about each other's things before they create their own.

Lex Fridman 39:13 Mm-hmm.

Vitalik Buterin 39:13 But this also could happen because of an attack. Now, if this happens, you have an attack, then the, uh, no- in the Bitcoin system, uh, the nodes follow the longest chain. Um, so if, um, this, um, attack had happened, uh, and of when the or- uh, original chain had more than two blocks on it, so if it was trying to kind of revert more than- more than two blocks, then everyone would just ign- would just ignore it, uh, um, and everyone would just keep following the regular chain. But here, you know, we have block two and we have block two prime, and so the two are kind of even, and then c- whatever block, um, the next block is created on top of, so say block three is now created on top of block two prime, then everyone se- uh, agrees that block three is the new head, um, and block two prime is just kind of forgotten, and then everyone just kind of peacefully builds on top of block three and the thing continues.

Lex Fridman 40:08 So how difficult is it to mess with the system? I... It's-

Vitalik Buterin 40:12 Um...

Lex Fridman 40:12 So how, like, if we look at the general problem, like, how many... what fraction of people who participate in the system have to be bad players...

Vitalik Buterin 40:22 Hmm.

Lex Fridman 40:23 ... in order to m- mess with it, truly? Like what's your... Is there- is there a good number that-

Vitalik Buterin 40:27 Theorems. Um, well, depending on kind of what your model of the participants is, and, like, what kind of attack we're talking about, it's anywhere between 23.2 and 50%.

Lex Fridman 40:40 U- of what?

Vitalik Buterin 40:41 Of all of the computing power in the network.

Lex Fridman 40:45 Sorry. So 22 and-

Vitalik Buterin 40:46 23 point-

Lex Fridman 40:47 Fif- (laughs)

Vitalik Buterin 40:47 Between 23.2 and 50%.

Lex Fridman 40:49 And 50% are- can be, uh, compromised?

Vitalik Buterin 40:53 So, like, once your por- once your pers- your portion of the total, um, computing power of the network goes above the 23.2 level, then there's kind of things that you could- mean things that you can potentially do, and as your percentage over the network kind of keeps going up, then the- your ability to do mean things kind of goes higher, and then if you have above 50%, then you can just break everything.

Lex Fridman 41:16 So how- how hard is it to achieve that level? Like, it seems that...

Vitalik Buterin 41:22 Mm-hmm.

Lex Fridman 41:22 ... so far, historically speaking, it's been exceptionally difficult, but so-

Vitalik Buterin 41:26 This is a challenging question. Um, so the economic cost of, uh, acquiring that level of stuff from scratch is, uh, fairly high. I think it's, uh, somewhere in the low billions of dollars. Uh-

Lex Fridman 41:38 And when you say, "That stuff," you mean computational resources?

Vitalik Buterin 41:42 I mean, yeah. So specifically, specialized hardware and, uh, ASICs, uh, that people use to, uh, solve these, uh, puzzles, uh, is- to do the mining these days.

Lex Fridman 41:50 Small- small tangent, uh...

Vitalik Buterin 41:52 Mm-hmm.

Lex Fridman 41:52 So I- obviously I work a lot in deep learning with GPUs and ASICs for that application.

Vitalik Buterin 41:57 Mm-hmm.

Lex Fridman 41:57 And, uh, I tangentially kinda hear that so many of these... you know, sometimes Nvidia-

Vitalik Buterin 42:03 Okay.

Lex Fridman 42:03 ... GPUs are sold out-

Vitalik Buterin 42:04 Uh-huh. (laughs)

Lex Fridman 42:05 (laughs) ... because of-

Vitalik Buterin 42:06 Yes.

Lex Fridman 42:06 ... this other application. Like, what do, uh- k- if you can comment-... uh, I don't know if you're familiar or-

Vitalik Buterin 42:11 Mm-hmm.

Lex Fridman 42:11 ... interested in this space, what kind of ASICs, what kind of hardware is generally used these days for th- to do the actual computation for the-

Vitalik Buterin 42:19 Hmm.

Lex Fridman 42:19 ... the proof of work ?

Vitalik Buterin 42:20 Sure. So in the case, uh... And Bitcoin and Ethereum are a bit different. Uh, so in the case of Bitcoin, there is an algorithm called, uh, SHA-256, it's just a hash function. And so the puzzle is just coming up with a number where the hash over the number is below some threshold. And so 'cause the hashes are designed to be random, you just have to keep on trying different numbers until one works. And the ASICs, uh, are just like specialized circuits that contain kind of circuits for evaluating this hash over and over again. And you have kind of like millions or billions of these hash evaluators since... Just stacked on top of each other inside of a box, and you just keep on running the box 24/7.

Lex Fridman 43:00 In the ASICs, there's literally specialized hardware design for this.

Vitalik Buterin 43:03 Yes.

Lex Fridman 43:04 Oh, this is... We live in an amazing world.

Vitalik Buterin 43:06 (laughs)

Lex Fridman 43:06 A- another tangent, and I'll, I'll come back to the basics, but, uh, does quantum computing throw a wrench into any of this?

Vitalik Buterin 43:14 Very good question. So, uh, quantum computers have two main, uh, kind of families of algorithms that are relevant to cryptography. One is, uh, Shor's algorithm. And Shor's algorithm is, uh, one that kind of completely breaks, uh, the hardness of, uh, some specific kinds of mathematical problems. So the one that you've probably heard of is it makes it very easy to factor numbers, uh, so figure out kind of what prime factors are that kind of... That you need to multiply together to get some number, even if that number is extremely big. Um, Shor's algorithm can also be used to break elliptic curve cryptography. Um, it can break, like any kind of hidden order groups, like g-... It, it breaks a lot of kind of cryptographic nice things that we're used to. But the good news is that for every kind of major use of, uh, things that Shor's algorithm breaks, we already know of, uh, quantum-proof alternatives.

Lex Fridman 44:10 Right.

Vitalik Buterin 44:10 Now, the... We don't use these quantum-proof alternatives yet because in many cases, they're five to ten times less efficient, but... And, uh, the crypto acr- industry in general kind of knows that this is coming eventually, and it's kind of ready to, uh, take the hit and switch to that stuff when, uh, we, when we have to. The second algorithm that is relevant to cryptography is Grover's algorithm. And, (coughs) and Grover's algorithm, uh, might even be kind of more familiar to AI people. It's basically usually described as solving search problems. Um, but the idea here is that if you have a problem over the form, find a number that satisfies some property, um, then if... With a classical computer, you need to try kind of n times before, uh, before you find the number. Then, uh, with a, uh, quantum computer, you only need to do square root of n computations.

Lex Fridman 45:04 Mm-hmm.

Vitalik Buterin 45:04 And Grover's could potentially be used for mining, but there's two possibilities here. One is that Grover's could be used for mining, and whoever creates, uh, the first working quantum computer that could do Grover's will just mine way faster than everyone else, and we'll see another round of, uh, what we saw when ASICs came out, which is this kind of the new hardware just kind of dominated the old stuff and then eventually it switched to a new equilibrium.

Lex Fridman 45:32 But by the way, way faster, not exponentially faster, right?

Vitalik Buterin 45:36 Quadratically faster.

Lex Fridman 45:37 Quadratically faster-

Vitalik Buterin 45:38 Yeah.

Lex Fridman 45:38 ... which is not sort of, uh... It's not game-changing, I would say. It's more like ASICs-

Vitalik Buterin 45:44 Yeah.

Lex Fridman 45:44 ... like you said it would be, uh...

Vitalik Buterin 45:45 Exactly. Yeah. So it would not necessarily break proof of work as a thing.

Lex Fridman 45:50 That's right, yeah.

Vitalik Buterin 45:50 Now, the other k- kind of possible world, right, is that quantum computers have a lot of overhead. There's a lot of kind of complexity involved in maintaining quantum states. And there's also, as we've been realizing recently, uh, making quantum computers req- uh, actually work requires kind of quantum mirror correction, which requires kind of a thousands-

Lex Fridman 46:10 Yeah.

Vitalik Buterin 46:10 ... real qubits per logical qubit. And so there's the very real possibility that the overhead of running a quantum computer will be higher than the speed up you get with Grover's, which would be kind of sad, but which would also mean that a given proof of work will just keep working fine. (laughs)

Lex Fridman 46:26 (laughs) So... Beautifully put. So, so proof of work is, uh, the core idea of Bitcoin. Is there other core ideas before we kind of-

Vitalik Buterin 46:34 Mm-hmm.

Lex Fridman 46:34 ... take a step towards the origin story and ideas of Ethereum? Is there other stuff that, uh, were key to the white paper of Bitcoin?

Vitalik Buterin 46:42 There is proof of work, and then there's just the cryptography, just kind of public keys and signatures that are used to, uh, verify transactions. Those two are the big things.

Lex Fridman 46:51 So then what is, um, the origin story, maybe the human side, but also-

Vitalik Buterin 46:56 Mm-hmm.

Lex Fridman 46:56 ... the technical side of Ethereum?

Vitalik Buterin 46:58 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...

Lex Fridman 47:15 Sorry to interrupt. You have this funny-

Vitalik Buterin 47:16 Sure.

Lex Fridman 47:16 ... 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.

Vitalik Buterin 47:28 (laughs)

Lex Fridman 47:28 Is this true, or you're just being witty? (laughs)

Vitalik Buterin 47:31 Uh, I mean, the event is true. The fact that that's the reason I do decentralization is witty.

Lex Fridman 47:35 (laughs) May- maybe just a small tangent. D- have you always had a skepticism of centralized control? Is that sort of-

Vitalik Buterin 47:45 To some degree, yeah.

Lex Fridman 47:46 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?

Vitalik Buterin 47:55 It's definitely been something that felt very attractive to me ever since I could afford that such a thing is kind of possible.

Lex Fridman 48:01 It's possible, even technically.

Vitalik Buterin 48:02 Yeah.

Lex Fridman 48:03 So great, so you're... You joined the Bitcoin community in 2011, you said. You began writing.

Vitalik Buterin 48:07 Mm-hmm.

Lex Fridman 48:08 So wha- what's next?

Vitalik Buterin 48:10 ... 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.

Lex Fridman 50:09 By the way, just a small pause. What's- Mm-hmm. You say financial contract, just the terminology. What is a contract?

Vitalik Buterin 50:16 Um, that's-

Lex Fridman 50:16 What's a financial contract?

Vitalik Buterin 50:18 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.

Lex Fridman 50:45 So a contract is really- a financial contract is the- is at the core-

Vitalik Buterin 50:49 Mm-hmm.

Lex Fridman 50:49 It's the- it's the core interactive element of a financial system.

Vitalik Buterin 50:53 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...

Lex Fridman 51:20 But the main idea that these contracts have to be enforced and trusted, um...

Vitalik Buterin 51:24 Yes, exactly.

Lex Fridman 51:25 You have to trust that they will work in a system where nobody can be trusted.

Vitalik Buterin 51:29 Yes.

Lex Fridman 51:31 (laughs) This is such a beautiful, complicated system. Okay, so, uh, so you were seeking to kind of generalize this basic-

Vitalik Buterin 51:39 (clears throat)

Lex Fridman 51:39 ... uh, framework of contracts.

Vitalik Buterin 51:40 Mm-hmm.

Lex Fridman 51:42 Uh, so what does that entail? So what, uh, what technically are the steps to creating Ethereum?

Vitalik Buterin 51:49 Sure. So I guess just to kind of continue a bit with this Mastercoin story-

Lex Fridman 51:53 Sure.

Vitalik Buterin 51:53 Um, so started by kind of giving ideas for how to generalize the thing, and eventually, um, this turned into a much, uh, more kind of fully fledged proposal that just says, "Hey, how about you scrap all your features and instead you just, um, put in this programming language?" And I gave this idea to them, and their response was something like, "Hey, this is great, but this seems complicated and this seems like something that's- we're not gonna be able to put onto our roadmap for a while." And my response to this was like, "Wait, do you not realize how revolutionary this is? Well, I'll just go do it myself."

Lex Fridman 52:26 (laughs)

Vitalik Buterin 52:26 And then I...

Lex Fridman 52:28 What was the name of the programming language?

Vitalik Buterin 52:30 I just called it Ultimate Scripting. (laughs)

Lex Fridman 52:32 (laughs) Great.

Vitalik Buterin 52:33 Uh, so then I, uh, kind of went through a couple more rounds of iteration, and then the idea for Ethereum itself started to form. Um, and the idea here is that you just have a blockchain where the core unit of the thing is what we call contracts, it's these kind of accounts that can hold assets, um, and they- they have their own internal memory, but that are controlled by a piece of code.

Lex Fridman 53:02 Mm-hmm.

Vitalik Buterin 53:02 And so if I send some Ether to a contract, the only thing that can determine where that kind of Ether, uh, the currency inside Ethereum, kind of goes after that-

Lex Fridman 53:13 Okay.

Vitalik Buterin 53:13 ... um, is, uh, the code of that contract itself. And so basically kind of sending assets to computer programs becomes this kind of paradigm for creating these kind of agree- self-executing agreements.

Lex Fridman 53:29 Self-executing. That's so cool that code is sort of part of this contract.

Vitalik Buterin 53:33 Mm-hmm.

Lex Fridman 53:34 So that- that's what's meant by smart contracts.

Vitalik Buterin 53:36 Yeah.

Lex Fridman 53:37 So how hard was it to build this kind of thing?

Vitalik Buterin 53:40 Harder than expected. Um, I mean, originally I actually thought that this would be a thing that I would kind of casually work on for a couple of months, publish, and then go back to university.

Lex Fridman 53:50 Mm-hmm.

Vitalik Buterin 53:50 Um, then I released it, and a bunch of people... Or I released a white paper.

Lex Fridman 53:57 The white paper.

Vitalik Buterin 53:57 Yeah.

Lex Fridman 53:57 The ideas there, yeah.

Vitalik Buterin 53:58 The idea, the white paper. Um, a whole bunch of people came in offering to help, a huge number of people kind of expressed interest, and this was something I was totally not expecting. And then I kind of realized that this would be something that's kind of much bigger than I had ever, um, thought that it would be, and...... then we started on this kind of much longer development slog of making something that, that lives up to this sort of much higher level of expectations.

Lex Fridman 54:28 W- what are the, some of the, is it fundamentally, like, software engineering challenges?

Vitalik Buterin 54:33 It was.

Lex Fridman 54:33 Is there social? Okay, so there's-

Vitalik Buterin 54:35 And social.

Lex Fridman 54:36 (laughs) So-

Vitalik Buterin 54:37 So-

Lex Fridman 54:37 So what are the biggest interesting challenges that you've learned about human-

Vitalik Buterin 54:42 Hmm.

Lex Fridman 54:42 ... civilization and engi- and software engineering (laughs) through this process?

Vitalik Buterin 54:46 Ugh. So, ff- I guess one of the challenges for me is that, like, I'm one of the kind of apparently unusual geek schools, and I've never treated with anything but kindness in school.

Lex Fridman 54:58 Yes.

Vitalik Buterin 54:58 Um, and so when I, uh, got into crypto, I kind of expected everyone would just kind of be the same, kind of altruistic and nice in that same way. Um, but the, um, kind of the algorithm that I used for finding co-founders for this thing was not very good. It was sort of literally what computer scientists call the greedy algorithm. It's sort of the first 15 people who replied back offering to help kind of are the co-founders.

Lex Fridman 55:25 Oh, you mean, like, literally, the c- the, the people that form, will form the, be the c- the, the, the founders-

Vitalik Buterin 55:31 Yeah.

Lex Fridman 55:31 ... co-founders of the community, the algorithm. I like how you call it the algorithm.

Vitalik Buterin 55:35 Yeah, um, uh, and so what happened, uh, was that, uh, these, um ...

Lex Fridman 55:42 (laughs)

Vitalik Buterin 55:42 Like, especially as the project got really big, like, there started to be a lot of this kind of infighting, and there were a lot of, like, I w- wanted the thing to be a nonprofit, and some of them wanted to be a for-profit. Um, and then there started to be people who were just kind of totally unable to work with each other. There, mm, s- were people that were kind of trying to get an advantage for themselves in a lot of different ways, and this, uh, just l- about six months later led to this big governance crisis, and then we kind of reshuffled leadership a bit, and then, uh, the project kept on going. Then nine months later, there was another governance crisis, and then there was a third governance crisis, and so-

Lex Fridman 56:23 Is there a way to, um-

Vitalik Buterin 56:25 Mm-hmm.

Lex Fridman 56:25 If you're looking at the human side of things, is there a way to optimize this aspect of the cryptocurrency world? It seems that there is, uh ...

Vitalik Buterin 56:33 Mm-hmm.

Lex Fridman 56:34 From my perspective, there's a lot of different characters and personalities and egos.

Vitalik Buterin 56:39 Mm-hmm.

Lex Fridman 56:39 And like you said, uh, I don't know if, you know, I also like to s- think that m- most of the world, most of the people in the world are well intentioned.

Vitalik Buterin 56:49 Mm-hmm.

Lex Fridman 56:50 But the way those intentions are realized may perhaps come off as, uh-

Vitalik Buterin 56:54 Yeah.

Lex Fridman 56:55 ... as, as negative.

Vitalik Buterin 56:56 Mm-hmm.

Lex Fridman 56:56 Like, what, uh, w- is there, is there a hopeful message here about creating-

Vitalik Buterin 57:01 Mm-hmm.

Lex Fridman 57:01 ... a governance structure for cryptocurrency that, uh, where everyone gets along? (laughs)

Vitalik Buterin 57:06 I mean after about four rounds of reshuffling, I think we've actually f- come up with something that seems to be pretty stable and happy. Um, I think, uh, (sighs) I mean, I definitely do think that, you know, most people are well intentioned. I just think that, like, one of the reasons why I like decentralization is just because there's, like, this thing about power, where power attracts people with egos, and so that just allows this very small percentage of people to just ruin so many things.

Lex Fridman 57:37 You think ego has a, you think ego has a use? Like, is ego always bad? It seems like some of the most-

Vitalik Buterin 57:45 Uh, it sometimes does. Within the Ethereum research team, I feel like we've, uh, found also kind of a lot, like, a lot of very good people that are just pri- kind of primarily just interested in things for the technology, and, uh, you know, things, uh, seem to just generally be going quite well.

Lex Fridman 58:06 Yeah, when you're, when the focus and the passion is in the tech. So on the, so that's the human side of things, but-

Vitalik Buterin 58:12 Mm-hmm.

Lex Fridman 58:12 ... on the technology side, like, what have you learned? What, what have been the biggest challenges of bringing Ethereum to life on the technology side?

Vitalik Buterin 58:21 (clears throat) So I think first of all, just, uh, you know, there's, like, the first law of software development, which is that when someone gives you a timetable, um, switch the unit of time to the next largest unit of time and add one.

Lex Fridman 58:34 Yes.

Vitalik Buterin 58:34 And, like, we basically fell victim to that. Um, and, uh-

Lex Fridman 58:39 (laughs)

Vitalik Buterin 58:39 ... and so f- in- instead of taking, uh, s- like, three months, it ended up taking, like, 20 months to launch the thing. Um, and that was, uh, just, I think, underestimating the sheer technical complexity of the thing. Um, there were research challenges. Like, so for example, one of the things that we've been saying from the start that we would do, one is a switch from, uh, proof of work to, uh, proof of stake. Um, where proof of stake is, so this, uh, alternative consensus mechanism where instead of, uh, you know, having to waste a lot of, uh, computing power on solving these mathematical puzzles that don't mean anything, you kind of prove that you have access to coins inside of the system, and this, uh, kind of gives you some level of participation in the consensus.

Lex Fridman 59:23 Can you maybe elaborate on that a little bit? I understand the idea of proof of work.

Vitalik Buterin 59:27 Mm-hmm.

Lex Fridman 59:27 Um, I know that a lot of people say that pr- the idea of proof of stake is really appealing.

Vitalik Buterin 59:31 Mm-hmm.

Lex Fridman 59:32 Can you maybe linger on it longer, explain what it is?

Vitalik Buterin 59:35 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.

Lex Fridman 1:00:29 Okay, so then interesting, so that, that limited participation doesn't require you to run a lot of compute.

Vitalik Buterin 1:00:34 Mm-hmm.

Lex Fridman 1:00:36 Uh, does that mean that the richer you are-

Vitalik Buterin 1:00:40 Mm-hmm.

Lex Fridman 1:00:41 ... so rich people, um, are more... like, their identity is more, um-

Vitalik Buterin 1:00:48 Right. And this-

Lex Fridman 1:00:49 ... stable.

Vitalik Buterin 1:00:51 Yeah.

Lex Fridman 1:00:52 Verifiable, or whatever, whatever the right terminology is.

Vitalik Buterin 1:00:55 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.

Lex Fridman 1:01:03 Yes, exactly.

Vitalik Buterin 1:01:03 Yeah, 'cause-

Lex Fridman 1:01:04 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)

Vitalik Buterin 1:01:15 Yes. And, uh, burn computers and burn trees, and all of that stuff.

Lex Fridman 1:01:19 Is there, um, a way to mess with the system over the proof of, um, proof-of-stake?

Vitalik Buterin 1:01:25 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.

Lex Fridman 1:01:31 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-

Vitalik Buterin 1:01:41 Mm-hmm.

Lex Fridman 1:01:42 ... you have to use so much energy in the world.

Vitalik Buterin 1:01:44 Yes.

Lex Fridman 1:01:44 Uh, is, uh, one of the motivations of, uh, proof-of-stake is to move away from this?

Vitalik Buterin 1:01:49 Definitely.

Lex Fridman 1:01:50 Like, what- what's your sense of the... Uh, maybe I'm just under-informed.

Vitalik Buterin 1:01:54 Mm-hmm.

Lex Fridman 1:01:54 Is there, like, legitimately environmental impact from this? (laughs)

Vitalik Buterin 1:01:58 Yeah. Uh, so the latest thing was that Bitcoin consumed as much energy as the country of Austria, or something like that.

Lex Fridman 1:02:06 Okay. (laughs)

Vitalik Buterin 1:02:06 Yeah. And then Ethereum is like, right now, maybe only like half an order of magnitude smaller than Bitcoin.

Lex Fridman 1:02:12 I've heard you talk about, uh, Ethereum 2.0. So what's the, what's the dream of Ethereum 2.0?

Vitalik Buterin 1:02:18 Mm-hmm.

Lex Fridman 1:02:18 What's the, the status of proof-of-stake as the mechanism that-

Vitalik Buterin 1:02:22 Mm-hmm.

Lex Fridman 1:02:23 ... Ethereum moves towards? And also, how do you move to a different mechanism of consensus-

Vitalik Buterin 1:02:29 Sure.

Lex Fridman 1:02:29 ... with- withi- within a cryptocurrency?

Vitalik Buterin 1:02:31 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.

Lex Fridman 1:03:02 Mm-hmm.

Vitalik Buterin 1:03:02 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.

Lex Fridman 1:03:22 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-

Vitalik Buterin 1:03:30 Yeah.

Lex Fridman 1:03:31 ... software level?

Vitalik Buterin 1:03:32 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.

Lex Fridman 1:04:15 So most, most of the networking layer in, uh, cryptocurrency is you're shouting, like, you're like broadcasting-

Vitalik Buterin 1:04:21 Yes.

Lex Fridman 1:04:21 ... messages. And this is more like ad hoc networks. Like, you're-

Vitalik Buterin 1:04:25 Yeah. You're shouting within smaller groups.

Lex Fridman 1:04:27 Smaller group, but do you have like a bunch of sub-no- like-

Vitalik Buterin 1:04:30 Exactly.

Lex Fridman 1:04:31 ... and you have to switch betwe- Oh, man. I'd love to see the... Uh, so it's a beautiful idea-

Vitalik Buterin 1:04:37 Mm-hmm.

Lex Fridman 1:04:37 ... uh, so from a graph theoretical perspective, but just the software that-

Vitalik Buterin 1:04:42 (laughs) Yeah.

Lex Fridman 1:04:42 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-

Vitalik Buterin 1:05:04 Mm-hmm.

Lex Fridman 1:05:04 ... is it, is it a legit almost like large-scale open source project?

Vitalik Buterin 1:05:08 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?

Lex Fridman 1:05:25 Yes. (laughs)

Vitalik Buterin 1:05:25 The reason is that, um, like we also have this unique kind of organizational structure where the Ethereum Foundation itself kind of does research in-house, but then the actual implementation is done by independent teams that are separate companies, and they're located all around the world in, you know, like fun places like Australia, um, and so, uh, you know, you kind of just need a bunch of kind of almost non-stop cat herding to just keep getting these people to kind of talk to each other and, uh, kind of implement the spec, make sure that everyone agrees on kind of w- what's going on and kind of how to interpret different things. Mm-hmm.

Lex Fridman 1:06:03 So how far into the future are we from these two mechanisms in Ethereum 2.0? Like, what's, what's your sense of the timeline, keeping in mind the previous comment you made about the sort of, uh, general-

Vitalik Buterin 1:06:15 Mm-hmm.

Lex Fridman 1:06:16 ... curse of software projects?

Vitalik Buterin 1:06:19 So Ethereum 2.0 is, uh, split into three phases. Uh, so phase zero just creates a proof-of-stake network, and it's actually separate from, uh, kind of proof of, uh, the proof-of-work network at the beginning, just to kind of give it time to grow and i- improve itself.

Lex Fridman 1:06:35 Do people get to choose... Sorry to interrupt. Do people get to choose, I guess-

Vitalik Buterin 1:06:38 Yes.

Lex Fridman 1:06:38 ... which, which consensus mea-

Vitalik Buterin 1:06:39 They get, they get to choose to move over.... if they want to. Then phase one adds sharding, but it only adds sharding of kind of data storage and not sharding of computation. And then after that there is kind of the merger phase, which is where the, uh, kind of the accounts, uh, kind of smart contracts, like all of the kind of activity in, uh, the existing Eth1 system just kind of gets cut and pasted into Eth2, and then the proof of work chain gets forgotten and then, and things, all the things that were living there before just kind of continue living inside of the proof of stake system. So for timelines, um, phase zero has been, uh, kind of almost fully implemented. Um, and now it's just a matter of, uh, a whole bunch of security auditing and testing. Um, my own experience is that right now it feels like we're at about a phase comparable to when we were doing, uh, the original Ethereum launch when we were maybe about four months away from launch.

Lex Fridman 1:07:42 But that's just a hunch, then. You can't-

Vitalik Buterin 1:07:44 That's just a hu- that's just a hunch, yeah.

Lex Fridman 1:07:46 So how... You know, it took, it took like o- over a decade for people to move from Python 2 to Python 3.

Vitalik Buterin 1:07:52 Mm-hmm.

Lex Fridman 1:07:53 Uh, how do you see the move from, like, this phase zero of for, for different consensus mechanism? Do you see there being a, a drastic phase shift in people just kind of jumping to this better mechanism?

Vitalik Buterin 1:08:08 So in phase zero, I don't expect too many people to do much because in phase zero and phase one, the new chain, again, it deliberately it doesn't have too much functionality turned on.

Lex Fridman 1:08:19 Right.

Vitalik Buterin 1:08:19 It's there just, like, if you want to be a proof of stake validator, you can get things started. If you want to store data for other blockchain applications, you can get started. But existing applications will largely keep, uh, living on Eth1. And then when the merger happens, then the merger as a operation that happens all at once.

Lex Fridman 1:08:39 Mm-hmm.

Vitalik Buterin 1:08:39 I mean, so that's kind of one of the benefits of a consensus system that make, on the one hand, you have to coordinate the upgrade, but on the other hand, the upgrade can be coordinated.

Lex Fridman 1:08:48 (inhales deeply) So what's Casper FFG, by the way?

Vitalik Buterin 1:08:52 Um, Casper FFG is the consensus algorithm that we are using for the proof of stake.

Lex Fridman 1:08:57 Is there something interesting, uh, specific about Casper FFG, like some beautiful aspect of it that's, uh-

Vitalik Buterin 1:09:03 There is. Uh, so-

Lex Fridman 1:09:05 ... worth mentioning?

Vitalik Buterin 1:09:05 Casper FFG combines together kind of two different schools of a consensus algorithm design. Uh, so the general two different schools of the, of this design are, right, one is, uh, kind of 50% fault tolerant but dependent on network synchrony. So 50% fault toler- fault tolerant, but it d- it tolerates up to 50% of faults but not more, but it depends on an assumption that all of the nodes can talk, uh, talk to each other within some, uh, kind of limited period of time. Like if I send a message, you'll receive it within a few seconds. Um, and the second, uh, school is 33% fault tolerant but safe under asynchrony, which means that, like, if we agree on something, then that thing is finalized, and even if the network goes horribly wonky the second after that thing is finalized, there's no way to revert that thing. Um, and-

Lex Fridman 1:09:59 That's fascinating how you would make that happen.

Vitalik Buterin 1:10:03 It's, uh, definitely quite clever. Um, I'd recommend the Casper FFG paper. Um, if you just search, like, arXiv as in like A-R-X-I-V Casper FFG, it's right there.

Lex Fridman 1:10:13 That's on arXiv? The paper's on arXiv?

Vitalik Buterin 1:10:15 Yeah, yeah.

Lex Fridman 1:10:15 Who are the authors?

Vitalik Buterin 1:10:17 Uh, myself and, uh, Virgil Griffith.

Lex Fridman 1:10:20 That's awesome. Uh, uh-

Vitalik Buterin 1:10:21 Yeah.

Lex Fridman 1:10:21 To take a small tangent, uh, this idea of just putting out white papers and papers and putting them on arXiv and just putting them publicly, is that es- is that at the core? Is that a necessary component of cryptocurrency? Is that a tradition started with, uh, uh, Satoshi Nakamoto?

Vitalik Buterin 1:10:39 I-

Lex Fridman 1:10:39 What, what, what do you make of it? Like, what do you make of the future of that kind of sharing of ideas?

Vitalik Buterin 1:10:42 I guess so. Yeah. And it's definitely (inhales deeply) something that's like kind of mandatory for crypto because, like, crypto is all about making systems where, you know, you don't have to trust the operators to trust that the thing works. And so if anything behind how a system works is closed source, then that kind of, uh, kills the point. And so there is the kind of a sense in which the fundamental properties of the category of the thing we're trying to build just kind of forces openness. But also openness just has proven to be a really great way to collaborate. And then there's actually been a lot of kind of innovation and academic collaboration that's just kind of happened ad hoc in the crypto space the last few years. So like, for example, we have this forum called, uh, EthResearch, that's like E-T-H-R-E-S-E-A-R and then dot C-H.

Lex Fridman 1:11:35 Mm-hmm.

Vitalik Buterin 1:11:36 Um, and there we publish kind of just ideas in a form that's kind of half formal, like it's halfway in between... You know, like it's, it's a kind of a text write-up and, and you can have math in it, but it's often kind of much shorter than a paper.

Lex Fridman 1:11:52 Mm-hmm.

Vitalik Buterin 1:11:52 And more... Like, it turns out that the great majority of new ideas, like they're just kind of fairly small nuggets that you can explain in like five to ten lines, and they don't really-

Lex Fridman 1:12:02 They don't need the whole formality of a paper, right?

Vitalik Buterin 1:12:04 Yeah, they... Exactly. They don't require the kind of like ten pages of kind of filler, and so-

Lex Fridman 1:12:09 Introduction and conclusion is not needed. (laughs)

Vitalik Buterin 1:12:11 Yeah. And so instead you just kind of publish the idea and then, like, people can go comment on it and-

Lex Fridman 1:12:17 That's brilliant.

Vitalik Buterin 1:12:17 Yeah, no, this has been-

Lex Fridman 1:12:18 That's so-

Vitalik Buterin 1:12:19 ... great for us.

Lex Fridman 1:12:20 I think I interrupted you. Was there something else on Casper FFG that's interesting?

Vitalik Buterin 1:12:24 No. So just Casper FFG is just kind of combines together these two schools. Um, and so basically it creates this system where...If you have, uh, more than 50% that are honest then y- um, and you have a network synchrony, then the thing kind of goes as a chain. But then if network synchrony fails, then kind of the last few blocks in the chain might, um, kind of get replaced. But anything that was finalized by this kind of more asynchronous process, uh, gets, uh, like can't be reverted. And so you essentially get a kind of best of both worlds between those two models.

Lex Fridman 1:13:04 Okay, so I know what I'm doing tonight. (laughs) I'm gonna be reading the Casper FG paper.

Lex Fridman 1:13:09 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.

Vitalik Buterin 1:13:23 Yeah, I mean, I think the fact that money can just emerge out of a database if enough people believe in it, I think-

Lex Fridman 1:13:29 (laughs)

Vitalik Buterin 1:13:30 ... is definitely one of those things that's up there. Um-

Lex Fridman 1:13:33 (laughs)

Vitalik Buterin 1:13:34 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.

Lex Fridman 1:14:00 Yes.

Vitalik Buterin 1:14:01 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-

Lex Fridman 1:14:10 (laughs)

Vitalik Buterin 1:14:11 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-

Lex Fridman 1:14:35 So it's arbitrarily composable in this kind of way, so you have different, uh, different groups-

Vitalik Buterin 1:14:39 Yeah.

Lex Fridman 1:14:39 ... 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-

Vitalik Buterin 1:14:49 Yeah.

Lex Fridman 1:14:49 ... in this kind of way.

Vitalik Buterin 1:14:49 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.

Lex Fridman 1:15:01 Is it a particular kind of, like, financial applications kind of thing?

Vitalik Buterin 1:15:05 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.

Lex Fridman 1:15:32 Mm-hmm.

Vitalik Buterin 1:15:32 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.

Lex Fridman 1:15:47 Mm-hmm.

Vitalik Buterin 1:15:47 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-

Lex Fridman 1:16:41 A- a- and uh, the uh, the fundamental, the, the distributed application infrastructure a- uh, allows that somehow.

Vitalik Buterin 1:16:49 Yes. So this is a smart contract meeting. This is all a computer program that's just running on Ethereum.

Lex Fridman 1:16:55 Got it. Smart contracts too are just fascinating.

Vitalik Buterin 1:16:58 They are. (laughs)

Lex Fridman 1:16:59 (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-

Vitalik Buterin 1:17:10 Mm-hmm.

Lex Fridman 1:17:10 ... of currency in the world?

Vitalik Buterin 1:17:12 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.

Lex Fridman 1:17:25 What's fiat currency, by the way?

Vitalik Buterin 1:17:26 Oh, just like things like US dollars and like dollars and euros and yen and these other things.

Lex Fridman 1:17:32 And they're sort of backed by governments.

Vitalik Buterin 1:17:34 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.

Lex Fridman 1:18:22 It's interesting that you're quite humble about the possibilities of the future of cryptocurrency.

Vitalik Buterin 1:18:27 Mm-hmm.

Lex Fridman 1:18:27 You, you don't think there's a possible future where, uh, it-

Vitalik Buterin 1:18:31 Mm-hmm.

Lex Fridman 1:18:31 ... becomes the main set of currency because it feels-

Vitalik Buterin 1:18:35 Eh.

Lex Fridman 1:18:35 ... like fiat... It feels like-

Vitalik Buterin 1:18:36 Mm-hmm.

Lex Fridman 1:18:37 ... the centralized-... control by governments of currencies limiting somehow.

Vitalik Buterin 1:18:42 Mm-hmm.

Lex Fridman 1:18:42 Maybe in my naïve, utopian-

Vitalik Buterin 1:18:44 Yeah.

Lex Fridman 1:18:44 ... view of the world.

Vitalik Buterin 1:18:46 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.

Lex Fridman 1:19:18 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.

Vitalik Buterin 1:19:27 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.

Lex Fridman 1:20:00 Mm-hmm.

Vitalik Buterin 1:20:00 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.

Lex Fridman 1:20:24 On that topic, so Bitcoin does have a limited suppl- a specific-

Vitalik Buterin 1:20:28 Mm-hmm.

Lex Fridman 1:20:28 ... fixed supply.

Vitalik Buterin 1:20:29 Yes.

Lex Fridman 1:20:30 Uh, what's, what's the idea, and Ethereum doesn't, but can you clarify-

Vitalik Buterin 1:20:35 Mm-hmm.

Lex Fridman 1:20:37 ... uh, just on the comment you just made, is Ethereum qualify to the kind of currency that you're talking about in being flexible-

Vitalik Buterin 1:20:43 Uh-huh.

Lex Fridman 1:20:43 ... in the supply? (laughs)

Vitalik Buterin 1:20:44 I mean, it's a bit more flexible, but kind of the thing that you would really want is something that's kind of specifically flexible in a response to how valuable the currency is. And, and I'd recommend, uh, you know, to look at stable coins as well, so like things like DAI, for example. It's a n- like ...

Lex Fridman 1:21:04 How do you spell that?

Vitalik Buterin 1:21:05 D-A-I.

Lex Fridman 1:21:07 And what, uh, what's stable coins? Is it a type of cryptocurrency?

Vitalik Buterin 1:21:11 It is a type of cryptocurrency. It's, um, a type of cryptocurrency that's issued by a smart contract, one of these Ethereum computer programs, that, um, where the smart contract holds a bunch of Ether, and then it iss- basically, uh, that people deposit, and then it issues DAI, and the reason why people deposit is because they want to kind of go high leverage on their Ether. And so it kind of pairs these two sets of u- users, one that wants stability and one that kind of wants extra risk together with each other, and it basically creates some, or gives one set of participants a guarantee that they'll be pa- uh, that they have this asset that can, that, that can be later converted back into Ether but, uh, in like specifically at to kind of the $1 rate.

Lex Fridman 1:21:57 And it has some kind of, uh, stabilizing network effects when they're-

Vitalik Buterin 1:22:01 Yeah, it has this-

Lex Fridman 1:22:02 ... two up here?

Vitalik Buterin 1:22:02 Yeah, it, it has many kinds of stabilizing mechanisms in it.

Lex Fridman 1:22:06 That's fascinating. Okay. This (laughs) this, this world is awesome technically.

Vitalik Buterin 1:22:09 (laughs)

Lex Fridman 1:22:09 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-

Vitalik Buterin 1:22:20 Mm-hmm.

Lex Fridman 1:22:20 ... if I may say so like charlatanism.

Vitalik Buterin 1:22:23 Mm-hmm.

Lex Fridman 1:22:24 Uh, and you don't often see, at least from an outsider's perspective, the beautiful science of it and the-

Vitalik Buterin 1:22:29 Yeah.

Lex Fridman 1:22:29 ... engineering of it.

Vitalik Buterin 1:22:30 Mm-hmm.

Lex Fridman 1:22:30 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?

Vitalik Buterin 1:22:47 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-

Lex Fridman 1:23:40 Just crawl along that-

Vitalik Buterin 1:23:42 Yeah, yeah, you just gotta craw-

Lex Fridman 1:23:42 ... uh, start with the Ethereum group and then look at the academics, Dan Boneh and so on, and then-

Vitalik Buterin 1:23:46 Yeah.

Lex Fridman 1:23:47 ... just cautiously expand the network of people you follow.

Vitalik Buterin 1:23:50 Yeah, exactly. And like if someone seems too s- too self-promotional, then just-

Lex Fridman 1:23:55 Yeah, it's-

Vitalik Buterin 1:23:55 ... like remove them.

Lex Fridman 1:23:56 Is there books that are ... So th- there's these white papers, and we just discussed about sh-

Vitalik Buterin 1:24:02 Yeah.

Lex Fridman 1:24:02 ... about ideas being condensed into really small parts.

Vitalik Buterin 1:24:05 There are.

Lex Fridman 1:24:06 Is, is there books that are emerging that are kind of good, uh, introductory material for crypto?

Vitalik Buterin 1:24:11 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