Bankless 149 - Ethereum in 2023 with Vitalik Buterin

Primer: As the year comes to a close, Vitalik Buterin returns to the Bankless Podcast to provide a recap of the crypto sector in 2022 and his hopes for 2023. He also shares his thoughts on Ethereum’s use case as money, DeFi DApps, identity, DAOs, and hybrid applications.

Crypto In 2022

• People remember the year for all the terrible stuff that happened

• Important to remember the positive events too (e.g. the merge)

• The merge is a transaction inclusion time decrease

• Have multiple zk-EVM implementations that will have a mainnet launch in 2023

• Sign in with Ethereum has seen massive gains in adoption

• Cryptocurrency payments worked during the invasion of Ukraine

Was 2022 Unusual?

• The Mt Gox blow-up in 2014 felt like an existential crisis for crypto

• In 2022, we have a thicker and more interconnected crypto space

• In both cases, there was fragility and contagion that caused crypto prices to crash

• Crypto is no longer in the stage of increasing adoption from 0.1% to 10%

• It’s now in the stage of increasing adoption from 10% to 70%, which requires a different strategy

• People losing money is not a message that we want crypto to convey

Will We Get Stuck In The Niche of 0 - 10%?

• In 2011, he wrote an article comparing Bitcoin to Esperanto, Linux, and the Internet

• Each of these things started off as an idealistic movement to replace the existing system with something better

Esperanto

• Esperanto is a constructed language that strove to be universal. It did not succeed and just remained as a niche interest community

• English has too many network effects and won out

Linux

• Linux is an interesting middle case. It’s an open-source operating system that has a mixture of success and failure:

  • Linux on the desktop is a failure. It does not appeal to the majority of people

  • Linux has become an important backend thing for Android, servers, and devs

Internet

• The internet has taken over everything

Bitcoin

• His question in 2011 was whether would Bitcoin end up like Esperanto, Linux, or the internet

• Bitcoin might end up in the middle:

  • In developed countries, it might be Linux on the desktop

  • In developing countries, it might be ubiquitous

His Thoughts And Advice

• Have been using the term Ethereum more and the term crypto less

• This is not about being an Ethereum Maximalist

• The problem is that the crypto space is an ungovernable commons that has no barrier to entry

• Talking about Ethereum still leaves room for valuing the good and honorable things that are happening in other ecosystems

Lessons For The Industry In 2022

• The crypto space is at its most honorable only insofar as it actually takes its own core principles seriously

• Projects that are open and decentralized survived while centralized stuff is being questioned by people

Ethereum’s Use Case As Money

• In the Ethereum community, there’s a contradiction as some want Ethereum to be just a currency while others want it to be more than just money

• These 2 perspectives are more compatible than they might seem

• Stablecoins are part of DeFi. They are so simple and straightforward that most people don’t realize they are DeFi

• The apps that emerged during the old-school period were apps that really cared about providing specific forms of utility that were very clear to people

• The newer stuff focused on providing liquidity farms and high yield, regardless of whether is it sustainable

“The newer stuff tends to be more often justified by short-term evidence of what it does. And that's a very bad epistemology in the DeFi space because it's just so easy to get short-term great performance by sacrificing long-term performance, right?”

- Vitalik Buterin

Why Is Crypto Money Important?

• Has personally used crypto as money for medium-scale investments and charity donations

• Crypto is by far the easiest way to send money home to people’s families

• Lots of places where the fiat currency is unstable

• In these places, cryptocurrencies have a clear use case and are expected to succeed in the long-term

“Hey, I'm from this country, and in my country, there actually was hyperinflation. And because I was able to put money into Bitcoin and ETH, I was actually able to protect my savings.”

- Vitalik Buterin

Thoughts On DeFi DApps

• Fewer low-hanging fruits out there for people to create

• There’s also huge amounts of opportunity (e.g. making a wallet that billions use, a stablecoin that can survive a US dollar hyperinflation, sign in with Ethereum)

Identity

Blockchain Identity And Identity Platforms

• A complicated term that refers to a whole bunch of different ideas

• Concept of authentication: Proving the identity that you use to sign a message/transaction

• In the last decade, he noticed that there were people intentionally trying to create identity platforms and identity blockchains

• These people view identity as an abstraction rather than starting from the point of view of concrete use cases that people care about

The Emergence Of Identity

• Has to get the network effect running first

• In the Cypherpunk world, everyone has a PGP key. None of them has worked really well

• Now we have Ethereum accounts — private and public key pairs

How Do Different Identity Systems Talk To Each Other?

• POAP has been more successful within the Ethereum ecosystem than anything that calls itself an attestation protocol

• Lots of people have dozens of POAPs

• Definitely have room for others to succeed as well

• At some point, they have to talk to each other and agree on aligning cryptographic standards

Why Is Identity Important?

• People want to have an identifier that they can use to talk to other people

DAOs

His Excitement About DAOs

• DAOs are set to replace a lot of things other than corporations

• Thinks that corporations are one of the forms that DAOs are less likely to replace

• There are 2 architectures that make sense:

  • Quickly spinning up a multisig

  • To create something credible that’s resistant to takeover attacks and could last decades

• DAOs do not emphasize the smart contract logic. They emphasize more of the decentralization of very open and spontaneous collaboration patterns

• DAOs that are trying to be a VC fund do not make a lot of sense. It makes you move slower in a competitive environment where people can use that against you

DAO Governance Structures

• Need to have non-financialized governance to create intentional friction/speed bumps to protect against hostile takeovers

Hybrid Applications

• Apps that are not entirely on-chain, but benefit from being connected to a chain

• Scalability challenges don’t exist with hybrid apps

• Deployment challenges are much simpler, as it does not require the user to change their workflow

• Examples:

  • Proof of solvency protocols making CEXes safer

  • Game servers post state to the chain using ZK proofs

  • Voting

Building The Space Positively

• Doing more for applications that push the space forward and less for applications that are shiny and are not all that meaningful

• Continue having conversations with regulators all over the world

His Role In 2023

• Helping projects that are building good applications succeed

• Interacting and connecting with Ethereum communities around the world

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