51 - 2020 Reflections on Crypto and Beyond | Vitalik Buterin

Transcript

[Music] welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity i'm ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david we have vitalik on once again what topics do we cover yeah we cover three of his most recent blogs on his vitalik.ca blog these are all fantastic reads and in order to help amplify vitalik's message and try and get out what he's trying to get out we go through each of these blog pieces

together we start with his recap of 2020 and his forward-looking um kind of his forward-looking predictions into 2021 uh that blog was particularly interesting that's how we start the conversation we move into his blog post called an incomplete guide to rollups and he kind of helps us unpack what it is to be a roll up how we as an ethereum l2 scaling community landed on rollups as a construction and why why they are so powerful and then we also get into the topic of a social recovery wallet so these are all relatively three different uh topics but i would say they are all forward-looking uh topics that vitalik sees as kind of like the logical conclusion of a lot of different forces um perhaps maybe a lot

of them social a lot of them political in his first uh in his first blog post that we get into uh but then the second two are more technological and about the way that ethereum um the the landscape is going to manifest and mature over time so again a wide ranging conversation but still with a lot of awesome through lines absolutely if you're listening on the podcast of course we have this on youtube as well where we actually go through the articles visually if you're watching this on youtube you can check it out on the podcast and get it directly into your ears make it more portable that way david we should just get right into the interview but before we do guys we want to talk about the sponsors that made this episode possible if you want to

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2020 2020 was a a crazy year at least for me it did not start in the it did not go the way i had thought it would go and i think that's probably true for for a lot of people um so let's start with that article we're also going to talk about your roll-ups article and then social recovery after that but let's talk about 2020. why was it such a strange year lots of things were strange it mean like first of all you know the virus was strange um then and politics in a lot of countries were strange um life moved onto the internet very

quickly and that made things that were already strange even more strange uh so i mean first of all just a whole bunch of uh things that have happened at the same time but also i think kind of in addition to some of the things that we saw that were in a fairly exclusive to 2020 it was also this year that i think really accelerated a lot of the trends that we've seen just already moving pretty quickly over the last couple of decades right so some of the more important ones that i talk about i mean one of them is just to the internet becoming this uh much more important and and of quickly primary force in our lives and i know

you had biology on your podcast earlier and he talked about like the primary and the mirror and this was kind of the flipping where the internet became the primary and i think like that was completely true but i also think it's important to like really think through some of the consequences of what that being true means right because for a long time you know people have talked about things like post-scarcity economics and of zero marginal costs um you know what a world where most value is a virtual and most things people care about over or virtual actually means um but i think the effects actually are profound right

and you don't i think kind of appropriately realize kind of just how much needs to be rethought um until you actually experience it um so and i've been i like i highlighted a couple of things like i yeah and i've talked about how important public goods are on the internet for example i um talked about how um import um even just like the different ways in which uh economics applies uh so like basically the the the challenge with kind of online activity generally right is um that um like it's just

much more difficult to formalize uh kind of things that are going on right like because in the physical world like we've done this in a fairly um thorough job of kind of formalizing you know this is a transaction this is a trade this is private property this is me selling something this is you buying something but on the internet and if the lines are inherently much more blurry there's a lot of kind of complicated kind of psychology mixing into everything else and so it's very hard to even just mathematically model things that are going on right like in say the traditional world i mean you can use things like the demand and supply curves and you can try to measure

um you know who um like what the price of apples is how the price of apples will change if someone spins up a new farm or if an old farm shuts down um you know you even you know things like war you can you have things like lancaster's laws and you can try to measure like how much damage an army will take if it fights another army and in reality there's a lot of noise but like you know there's things that you can try to kind of make um make mathematical models of uh but on the internet it's just this incredibly chaotic space right and whether or not some particular mess um tweet that someone makes gets 100 retweets or one million retweets

that's something that often just completely cannot be predicted ahead of time right it's so this environment where you just don't really know and there's this really complex set of interactions within this kind of primordial soup and like how do you even make say a mathematical model about like what bitcoin maximalists are going to do on twitter well okay i mean realistically you can just copy what they say at 12 months ago and then like maybe change like one or two words but uh the [Music] you know the the results of those uh intern of those interactions uh dude or just something that's like much more difficult to explain using tools that

worm optimized form explaining different things basically right and so that basically the one of the ideas that i wanted to kind of make is just that like understanding different kinds of mass psychology has become more important right like you know twitter runs on mass psychology political movements run on mass psychology uh bitcoin maximalism runs on mass psychology and ethereum maximalism runs on mass psychology um and these aren't really tools that have been typically used to describe like say meat space economies um but like realistically if we want to understand like say you know which

cryptocurrencies are going to going to be important 10 years from now like you just can't like the psychological tours are even more important than the economic tools in terms of just um understanding like what's actually going to happen there right and and so like basically i think it's just just realizing kind of the some the relative importance of these different tools and how like we just need the different ways of uh understanding this kind of world where everyone is just uh so quickly interacting with everyone else and just the one action can have like extremely large consequences very quickly is just something that's very important metallic ryan started off this

conversation uh asking about you know the he said that the trajectory of 2020 ended up being very far off from what he thought it was and this is uh something i hear you echoing when you say like the the the calculation or the calculus behind predictions around mass psychology is all haywire at this point it's all it's all very different from what we expect at the same time i've heard other people give different attitudes about 2020 which is you know perhaps less that 2020 was a massive curveball and there was perhaps less of a pivot of humanity than what we thought but rather just an acceleration right right and i think that's i think that's the point i'm trying to make as well right like it's these

things were true well before 2020 it's just that 2020 was the year where we just like suddenly flipped the switch from being like you know maybe like let's say in 2018 we life was like say twenty percent in our internet and in 2019 it was 22 internet and then in 2020 it just like flipped over to being like 60 internet so there's definitely trends that were growing before all these things did exist before um but the fact that we saw this sudden shift to the majority of a person's life experience um at least the part of a life experience that involves interacting with other people being behind the computer screen is something that's very significant

what characteristics or dispositions or just traits would would you say would excel as a result of like the changes that we've seen in 2020 if who do you what types of people do you think are going to do really well in comparison to others in this decade coming um and i think uh people who are not too stuck in existing ways of thinking um in institutions that were created um relatively yeah more recently um as opposed to as opposed to much older ones um people

who just like generalists is another really important category um like i think you know we saw this with even just you know the coronavirus for example right like you know if you're an excellent epidemiologist but you're terrible at understanding how human beings respond to messaging then you know you're going to have bad predictions if you're an expert at how um humans respond to messaging but you're but you know you're a terrible epidemiologist and you don't uh you don't have kind of the skills needed to just triangulate information from people who are good epidemiologists then you know you're going to have bad predictions on the coronavirus and so

the fact that we have these forces just all densely interacting with each other basically means that like there's a huge premium on and of being able to have your hand in pretty much all of them to always some extent um and there's definitely people who i think do that well and then it does get easier to see people who do that less well yeah i think that that this was something that really shaped 2020 and comes comes out in your article that actually understanding the world in 2020 or actually like even predicting the future required very much of this interdisciplinary approach right like so

um you talked about the idea of like there's econ economics and there's politics right but but there's also a blend which is this idea of a political economy and you talked about how in 2020 we saw governments acting much more like market actors they were almost acting like like companies market like market force is getting involved in that direct way and and then you had on the up flip side corporations acting like like governments um and then i i think the same sort of applies in in crypto too it's really the multi-disciplinary thinker that understands this space and succeeds in this space um and you talked a little bit about crypto as a social system too

why is it why is it so important i guess to be a multi-disciplinary thinker in in thinking in predicting the world of 2020 as it gets more complicated and then why is that also important in in crypto is it just that all of these systems are so interrelated together that you have to think of them as a as a holistic system and you can't kind of like carve out the pieces right again crypto definitely is a social system and you know as one of our favorite quotes goes uh layer zero is people you know look there is that layer and then there's also the layer of uh the economics and um you know things like

how staking works um things um like uh you know like how the various dfi contraptions work and all of these things interact with each other right uh so this is also just another example where 2020 is more of a trend acceleration like you can i've been i've been trying to point out some of these things for a long time right so like one example of this as just collusion um so like what in terms of um let's say can collusion break uh say proof of work mining right like from an economic analysis point of view we have answers right 51 can do whatever the hell they want and 33 can salvage money um but then there's this so that's basically about as far as economics can get you

now then there's the question well let's suppose that the network is broken up into one pool that has nine percent one pool that has eight percent one pool that has seven percent one pool that has uh you know six percent in one pool that has five percent and then a bunch of smaller pools so the top five pools get together make um they're going to make up 35 right now 35 is greater than 33 can those five pools together selfish mine well that actually depends on whether or not those five entities are able to work together uh and that is a question of uh like cultural issues much more than it is a question of economic issues right because so you know you have to answer

questions like well are like what is the internal structure of those pools um are those pool are those pools um owners uh friendly with each other um you know do they all go to the same bars are they in the same uh chat groups um are they all chinese or are they all american or are some of them chinese and some american and uh some from guatemala so the you know do they um all speak the same language do they have the same political opinion on you know like some random meat space issue like you know you just like you have to start uh kind of think thinking about all of these um questions in order because they all just

have an influence on whether or not those five pools actually can't get along um in order to make an attack and then of course there's a question of well like you know what are the moral values in the community and you know are any of those pools going to be morally averse to attacking are any of the pools going to try to whistle blow if they get called up to participate in this collusion and and so issues about kind of morality and like just what people's ethical views are it actually starts to become very important when you start talking about coordination and so like basically there is some amounts that the economics can say and then there is this other

amount like which usually you can kind of sum up to kind of which like which actors actually are um only going to act as separate actors and which actors can work together and kind of approximate one larger actor and you have to just ask about all these cultural and social forces if you want to the answer to that second question and of course all these systems do interact with each other right right so like what you're saying vitalik is like you you can't economics doesn't measure all of these other things right it doesn't necessarily measure some of the social factors and you ask the question about like what actually motivates human beings and it turns out that money is one

motivator maybe it's even sort of a useful motivator because it's a common denominator type motivator but it's far from the only motivator of human behavior there are so many other motivators of human behavior i i liked a tweet that you put out recently uh something to the effect of even a billion dollars of capital can't compete with a project having a soul right so like that wasn't a tweet that was part of the article it was part of the article okay so um like that is that that's kind of what you're saying is like there's actual tangible value in a project having a culture and a set of of beliefs can you get into that a little bit more so like

what do you mean about why is it important to understand what motivates us in in order to understand crypto economic systems um so i think um the thing that's important to remember is that most like all open source ecosystems and internet ecosystems more generally rely on a huge amount of free and uncompensated labor right there's many kinds of free and uncompensated labor right so like there's uh things um like um you know writing blogs and uh just i'm answering to people's posts when they ask for help on reddit or

or in some discord chat there is um participating in github discussions um there's even just like help educating people about you know whatever project you're in on twitter um there's uh running meetups um just answering other people's questions in meetups yeah that's how i got my start in this space absolutely there's uh writing code writing patches to other people's code there's just this really long list of behaviors and if you don't have uh people that are just doing those things because they love the project then you know you're just going to have an extremely hard

time right and i think like we see this with a lot of these you know vc chain projects like they often take this very proprietary route they're going to say you know no we're going to like lock um 50 professionals together in a room and pay them all like 500 000 a year and just they get them to build an awesome blockchain and an awesome client in six months and you know sure that can like build a software package but like that's not going to build an ecosystem right that's not going to build all of these kind of things that go around the software that people don't even realize are important and if you build your thing that way then like eventually you're just gonna have to burn even more uh money trying to kind of

pay people to do all of that as well um and so i mean you just if you treat uh building a product a software project purely as a like the way that a centralized company would treat it then like you're just the leaking in efficiency pretty much everywhere right like you just you basically have to pay people to do all of this work um and like but that's work uh that um you know people like like under the right circumstances would actually just love doing right and like it's important to remember what their circumstance um what those circumstances are right like people do

need to have like some a feeling that they're not being exploited a feeling that they're participating in a system which is kind of good for them and good for other people good for other people as well uh and there are projects that are just like doing a uh um a good job of this right i mean even just things like air drops for example are one example of this right you just kind of like sprinkle a bunch of tokens basically for free to an entire community and you just swapped it this uh great and i thought that was a kind of great move to um get this kind of community engagement uh so like you just basically as an uh open uh open source project like you just have

to kind of make sure just create an environment where you know people are interested in participating people are willing to participate and and where you know people like in some sense feel like the community that they're contributing to belongs to them right and not just them you know the company that's uh kind of theoretically most theoretically in charge of building the thing or i mean ideally that company doesn't even need to be in charge of uh like there doesn't need to be a single company in charge of the thing i think the the best and most salient example to back this up is like the absolute gargantuan amount of free

marketing that both bitcoin and ethereum receive from their respective communities right bitcoin podcasts are just done for your purposes you know financial purposes you know peter mccormack and his podcast is a very well financed podcast but he also has huge clout in the community and so do other all the other bitcoin podcasts and the ethereum media ecosystem which bank list is a part of is also like following in those footsteps like bankless eth the defiance like ethereum meters do media is doing really really well and i think one of the reasons why these public blockchains receive so much of so much you know tailwinds from all this free marketing is what you alluded to it just a just now but b also in your article as neutrality bitcoin ethereum

has neutrality maybe you could talk about how neutrality plays a role in people's um desires to commit their time and energy and human capital into these systems right so neutrality basically just to be or i i prefer even using the word credible neutrality uh what kind of emphasizes the social psychology aspect of it which is that it's not just about like convincing me that something is neutral it's about convincing each of us that each other will i make and consider the system to be neutral and so it's something that i think lots of people can um get behind at the same time and and i think um that

you know neutrality is just important basically and a big factor of it is just like people are willing to contribute but people don't want to feel like they're exploited and they don't want us to feel like all they're doing is to like just enrich some special interest um another part of this is um that you know people wants to contribute to a system where they can feel kind of some degree of personal ownership over it um also just people would prefer to participate in a system where they have some guarantee that you know the system is not going to unfairly go against them in the future and and

all of these things are just much easier to accomplish when you have a system that actually is neutral right like when you know you have something like an open source project or a blockchain or is generally something that has kind of the rules set up in such a way that you actually can make some kind of case that it does treat everyone fairly and that's something that you know centralized systems just do end up failing at all the time right like when they make any kinds of uh just decisions about lots of things like you know it's just hard to figure out whether some decision actually is a needed technical feature or whether it's just to like preserve

the company's business model or something like that and and so like in like if you have a project where there is a this uh kind of centralized company that feels like it's controlling things and it's getting most of the benefit then you know you just lose the ability to kind of get get these other benefits i was thinking vitalik earlier used the term uh love right you said you know that you know people in order to tell others or volunteer like answering questions or writing blog posts they have to really love the project right love and i i was just thinking to myself okay i know that there are people who love bitcoin right it's very easy to see bitcoin passion i know there are people

who love ethereum i myself love ethereum there's elements of bitcoin i love too and i was trying to think like what do i love so much about it and definitely credible neutrality is is sort of part of it and even even more broadly than that for me it's about kind of the the value system that i really identify with right so there's something about ethereum and to a lesser extent bitcoin that that i believe is net positive for the world right i think the thing that we're building with decentralized you know capital coordination human coordination tools is is going to reap the world my kids our grandkids future generations

some net benefit i believe that the world is skewed much more towards uh centralized you know systems and we need to kind of like balance the force at some level right it's this set of values that would honestly um like i would work for ethereum for free right like you know when it and book david and i we started off yeah you suppose started that way right and here's the thing is like you couldn't you couldn't pay me enough upside to invest in um some crypto projects out there like there's no amount of there's no amount of money you could pay me to put a dime into tron like i just i don't care how much money i would make i just don't adhere to the value system

so so what what is it about like um i guess how do you create a a culture like that what it's even sometimes hard to articulate exactly all of the values that that ethereum has but how important are values and and how do you foster that how do you uh create that in a community or does it just happen organically can you not like you know create these things i don't know what are your thoughts here i think founders are important um and like the or the very early kind of influential members in a community are important like basically the way that the community is near the beginning like basically just kind of it sets um the focal point so like you know it just like it sets the standard for like this

is a community of people who believe these things and if you're an outsider and you think you believe roughly those things then you know you would feel um inclined and then if welcome to join the community and if you don't believe those things then you would feel inclined to go join other communities uh so i think once uh that kind of seed has been planted then like it's easier to maintain it though it does still take work to maintain it right like it is still possible i think for a community to just like drift over time into being something much less interesting um but um the really important work i think is

just creating that seat at the beginning and if you don't have that seat at the beginning then that's something that's extremely hard to create retroactively do you know what what you're talking about vitalik almost reminds me of sort of uh like the way a religion might be founded right there's this set of values and people self-select no one's forcing you necessarily into a religion at least you know in most areas of the world that's not the case but you you kind of subscribe to a set of value systems and then you find yourself like pulled into that into that um specific religion or way of thinking and i guess that's the social element here too but you also address in your article how this can kind of take a dark turn too and you said uh we thought we were building nations

and it turns out uh what we got was digital nationalism right so this idea of like maximalism how can how can cultures kind of turn a little bit um dark and um i guess um i i i i don't know a word for it but like small senile small in their thinking small tent uh and close-minded might be might be some words to describe it what are some of the the negative effects of this social dynamic in crypto um uh okay and i think like first of all like one of one of the points that i feel like i tried to get across is that like we saw even down to a very big a very fine level of detail

phenomena happening in cryptocurrencies that seem to almost perfectly mirror phenomena that we see in like political systems right like we see things like you know the civil war between um you know you have a civil war inside of country x and then eventually country x splits in half and then you have one country that's called like you know like democratic republic of x and the other country it's called people's republic of accelerate whatever the word permutations are and then you have some other country why and uh that country wise supports like um the uh um the one that looks more like an offshoot and people and the other one think that countrywide is only supporting them because they will uh because they want to like drive a wedge and um attack the

first country but people in in countrywide think that they're that well no the other one is just more aligned with their values and then the story goes on right and in cryptocurrency land like we've basically replicated that exact phenomenon like down to very fine levels of detail and just basically within 10 years and and i thought that was interesting right it's like interesting because like if some if something can just appear twice in these completely different uh context with completely different kind of laws for what systems are and how they interact then

like this is a very kind of deep and fundamental kind of primitive of like basically mass um so uh enough social interaction that um it's just like it is is going to be very hard to kind of move beyond completely now what you're talking about just for the listener is you're talking about the bitcoin bitcoin cash civil war and then you're also talking about the ethereum ethereum classic split correct yeah uh so the um now in terms of like i think which community is uh are more healthier and which communities are less healthy i

mean so one of the quotes and this so this is one that i did make on twitter a while ago is um like i think evil comes mostly even not from greed but from fear right like like we have a culture i think of um you know thinking about greed as being kind of you know the ultimate evil and i'm talking about um you know evil villains who wants to take over the world and uh you know evil banksters who wants to make like billions of dollars um by defrauding people and all of these things but i think like their reality is that people are much more easily able to convince themselves to do the worst things when

they feel like they or their communities are under existential threat and i mean like this is something that you see if you kind of if you study and you know interactions between countries and political parties and like ish history more generally and i think this is something that we see in the crypto space as well um right like i think you know the bitcoin community for example or let's say the bitcoin small blockers for example i think like genuinely felt like they were under uh or they and their values were under existential threat from the big blocker movement that was uh trying to push a hard fork to increase the block size i think the ethereum community was at its worst

maybe in well one example one of the times was right after the ethereum classic hard fork where a lot of people are basically arguing that you know any like there's no legitimate reason to oppose the dow fork and if you oppo like the people who are or there's no legitimate reason to support ethereum classic um and if you support ethereum classic chances are you're probably just a bitcoin show which i think like you know a lot i think in a lot of cases it just ended up being completely false and like and i even believed some of those things myself at the time but like the reason why everyone was kind of whipped up into a frenzy is because that this was the first time that that

kind of hard fork and ethereum happened and it felt like you know like eve had gone down from twelve dollars to eight dollars right and etc was gone it had gone up from zero dollars to four dollars and it felt like there was this existential possibility that the etc situation would basically just completely wreck ethereum as we know it and in the so when hira community is just is faced with that kind of threat um then people are just going to act worse right and they think like it's true with bitcoin i think it's uh true with ethereum as well let's say you think true with basically any community uh and if

again the kind of normative conclusion from this i think is that if he wants to have better relations between the communities then like basically communities just like need to be able to convince each other that they are not interested in uh kind of like violating each other's uh like base like most fundamental like i'm like existence basically right that they're not interested in creating a scenario that would lead to the complete annihilation of the other one and that's that's harder than it seems right like you can't just kind of have a couple of leaders go out and say it because

there's inevitably some other people in the community who would go out and say something else and then someone gets into a twitter fight and they say something that gets quoted for for you know six months or five years but like that that feels something like that kind of feels like it's one of like basically the only way to have less of that sort of thing and like sometimes it is hard right like sometimes it's hard because the problem isn't just like the way people behave the problem is just like fundamentally what the things are right so like like for example if you're a bitcoin person and you believe that bitcoin only has like only has value because of uh the network effect and because of being number one

then you know you perceive any other um cryptocurrency getting too big relative to yourself as being an existential threat because if you become number two then from your point of view like uh three months later you're gonna be number two hundred um and that i like i look like that's uh i mean ethereum itself has kind of some risk of i believe of believing that if i'm you know like some day other smart contract platforms are going to become popular um so like creating a yeah like space and uh kind of creating intent to have an ecosystem that allows uh multiple crypto communities and even kind of multiple blockchains to survive

i think is uh like this is one of the reasons why i'm kind of intense to be fairly anti-maximalist like i think it's just kind of necessary to have peace right like if like the more people believe winner takes all then like you know the corollary of winner takes all is um you know loser take a loser um loses everything and [Music] if you like if people think that if they're the loser they yo is everything then they're gonna be willing to do just like the worst things in order to increase their chances of winning and that's something that i don't want to see there's an element of what you're saying in what you wrote which was which was kind of um like new system same problems you know the the this the same sort of

uh fragmentation and tribalism and and nationalism that we see in political systems we are now seeing play out in crypto in remarkably similar similar ways does that make you a bit pessimistic about about crypto in any way because like so we've got a new system but have we ported those same problems over and is that reason to be pessimistic i don't think so i think well i think like pretty much almost inevitably from the beginning i was expecting crypto to be a process of kind of starting off with very wild dreams but a very small scale um and inevitably kind of scaling back on its

dreams uh somewhat and kind of figuring out what parts of what it wants to accomplish are actually realistic while at the same time you know actually becoming a significant force that can impact you know global affairs and the future of humanity and i think like you know we're on that trajectory right like we're on that kind of trajectory where it's clear that there's some things that crypto is not going to do and some things that crypto is not going to solve but at the same time you know it's gone up from being this tiny little bubble that nobody cares about to being this big thing that um you know just all sorts of like mainstream figures and artists and intellectuals are starting to really

follow and care about what what about the ethereum community or ethereum and culture gives you pause or what something what about the ethereum community would you criticize that you would like to see changed or just be worked on into the future i remember you asked me this question almost a year ago uh yeah i think um one of the things i answered is just this kind of perception that um you know bitcoin has a uh like a strong and kind of focused narrative whereas um ethereum does not and i think my answer was something like well you know definitely in less certain terms but because i guess say it's hard for me to

say it in less certain times because i believe it more certainly now it's like you know you know focus is overrated and the whole point of ethereum is that it's um like it's not a missile it's a it's a it's a jungle uh and and uh you know the point of uh ethereum is that it's uh not trying to like accomplish this one single thing of um you know replacing global fiat currencies with if um and using the uh power of austrian economic theory to ensure that this definitely brings a human prosperity um and um you know it doesn't lead to like mass inequality if it happens over the

course of three years or whatever um but like i think in in you know ethereum instead was it's like there's there's many dreams right like there's uh obviously yeah i think ethereum does inherit the kind of bitcoin dream of just creating this kind of independent asset that people can directly own and control without any reference to you know banking institutions or um or governments i mean there's also this dream of us enabling you know decentralized financial applications there's um also um this dream of being this kind of con common interaction layer for just like different kinds of open source software

right like you know we had open source and now we have open state um and you can have these uh kind of applications that don't have a dependency on one single owner and but that can still interact with each other in kind of much more interesting ways um we still have the dream of like experimenting with you know decentralized governance and decentralized applications um we have like things like prediction markets um and prediction markets have been you know very exciting over the last uh a couple of months and i think i've uh outed myself a couple of times as a yeah proud and trump whale um and uh i don't know that that that was interesting like it's uh that was the first even one one of the first times when uh you know the

ethereum blockchain was like providing direct value to me as a user that i would just not be able to get on on any other platform um but by the way just for the real listeners and trump whale means as someone who is buying tokens that pay one dollar if trump does not win the election and importantly you were buying them for less than a dollar after the election correct after the election was done you were buying n trump tokens which pay out a dollar if trump doesn't actually win and you were buying them for less than one dollar for 85 cents yes who was it so

that was um so i think like the um and and then there's this big long tail of applications i'm you know using them for like some kind of like identity management um like using them for and we'll talk about social recovery wallets later but one of the ideas the longer term ideas that i have is that i think you can have social recovery while it's for accessing web 2 services um so like accessing centralized services and they like it would be nice to have ways of logging into centralized services that are not dependent on other centralized actors like google or facebook but or twitter but that's kind of skipping ahead right that's also a blockchain application um and then you know there's all of this

like identity there's like certificate related stuff uh there's just like money trans uh just a transfers remittances um donating to charity uh so there's this just a long interesting tale of um applications and you know there's plenty of people on ethereum land who believe in some of those applications and don't believe in other applications and and uh that's like a the thing that i realized is that you know that's healthy right like uh you know it's like no ethereum is not a missile that is a jungle right it's uh like there is no single part of it that has to succeed for the whole thing to succeed and you know it is just like creating this new set of uh kind of

tools and this kind of technological and economic substrate for a new kind of economy and like that is the vision and that's something that i think like was less clear to me a year ago but it's becoming much more clear over time and i know i feel like it's becoming much more clear to the ethereum community itself um as well over time uh so i think like just kind of improving on kind of telling that story well is um one thing that i think is just continues to be important i think it's just it's just the importance to kind of you know strike back against these kind of memes that some people give which is

that like you know ethereum has no values or that um that recent article from lynn alden where i think well she just said that you know bitcoin culture has more of this like ethos and ethereum culture as more gamers and i don't know let me facebook a bit uh you know nothing against gaming but you know the division is much broader than just gaming but i think we've definitely been doing ikea a not good enough job of properly articulating it um and then so that was one thing the other thing of course is like it would be nice if we can find some way to kind of communicate a narrative to other crypto projects and to just

convince them that ethereum is and doesn't is not an existential threat to them and and that they yeah like like basically that you know ethereum is not an everything killer right and i think like it's true that ethereum is not an everything killer and there's lots of other projects that have managed to kind of exist and various kinds of kind of symbiosis with ethereum and i think that's great and so if the the more we can kind of get other community energy other communities and their energies to be and of working with the ecosystem instead of them just very understandably feeling forced like

they're like they have to compete against it and then the better as our conversation around this particular blog post comes to a close i'd like to read out some of your conclusions that you put in in the last paragraph and by the way to the listeners this conversation that we're having with the vitalik here is a great supplement to the blog post but absolutely not a replacement so you can definitely go and read the blog post yourself at vitalik.ca you will find it there in in your conclusion vitalik you write three short bullets and i would like to read them here and we can go over them one-to-one interactions um this is your predictions for like or and your assessment for the current state of the world um so we have a world where one-to-one interactions are less

important one-to-many and many-to-many interactions are more important and then the next bullet the environment is much more chaotic and difficult to model with clean and simple equations many to many interactions particularly follow strange rules that we still do not understand well and then lastly the environment is dense and different categories of powerful actors are forced to live quite closely side by side with each other we've talked about some of these topics already here so far in this conversation but i just like to to turn the mic over to you and kind of get you to expand on some of these thoughts predictions and how you how the evidence that you saw play out in 2020 kind of led you to these conclusions sure so

for the first one and i think like i talked about this a bit right like a traditional economics tends to deal more with these uh one-to-one uh interactions where you know there's one buyer and there's one seller and you just have this series of transactions where like you know um alice sells an apple to bob alistal is a different apple to charlie and if bob has the money but charlie doesn't then bob gets the apple and charlie doesn't and so like you have this economy that that's you can uh kind of fairly easily decompose into these kind of fairly small interactions and you know we have things like these like fundamental welfare theorems um you know supply demand curves just all of these

uh long list of economic principles for dealing with those things but um on the internet like the average interaction is not one-to-one right like we are recording this podcast and but then lots of people are going to be listening to it right that's that in itself is like a three to ten thousand interaction um a lot um every time i write an article that's a one to ten thousand interaction um every piece of code um going to the uh that gets uploaded to an ethereum client is a like few to many interaction a conversation on twitter is a many-to-many interaction um even just like the maths and the psychology and economics of these i got a self-referential crypto

markets is a many-to-many interaction so like that those more complicated forms of behavior are just becoming more important pieces of um understanding of the the world as it's going to be and then an important result of this is just that the environment is much more chaotic right it's um there's some a lot of universal consequences of these interactions that are just hard to predict hard to understand sometimes we haven't we don't yet have good tools for understanding them sometimes there just are no good tools for understanding them and it's uh just more challenging to um understand um you know what the results of these

things are and so it just needs to kind of keep a more open mind toward these things and then the last one i think is also important right like this um goes back to the section that's um right before the the section at the end right this idea that we the world in general is this kind of dense environment where we have these different categories of powerful actors um so like one of the things that i talked about is basically you know did the did kind of you know the cypherpunk movement as uh defined by things like these 1996 and and if crypto anarchist the documents succeed or fail and the question is basically it turns out the answer depends on

is is your goal eliminating a big government or is your goal creating big something other than government right if your goal is the first one then you failed um and if your goal is the second one then you completely succeeded uh right like you know in the 2020 you got like big government is still strong but big business is like strong at the same time right like you know yeah then you know it's definitely at least looking like the uss space program at this point is basically elon musk and and you know that's something that i think might have been again even difficult to

first foresee even 10 years ago right but you know at the same time like i mean we especially with uh you know the virus situation and like both you know things like lockdowns and things like vaccine distributions governments are clearly this uh continue to be this big and important force and then there's also kind of big things other than governments uh like there's just like big um amorphous uh just mobs uh you know big ideologies big movements um and so like there's just all of these different uh kind of large-scale forms of human and coordination both centralized and decentralized and they're just all like at all time highs

of uh power at the same time right and that's not really a frame that i think most people were thinking about 10 years ago right i think most people 10 years ago would have been thinking about the frame of being well it's a kind of neither can with while the other survivor situation and it turns out that well no both of them live and both of them or all of them are living and all of them are surviving and even thriving and you know yes the interactions between them are kind of just very complicated and i think like this is also a bit of a harbinger so it's a word the kind of role that i expect crypto to play right like i i don't expect crypto to just kind of complete like wash away all of these existing even more

centralized forms of coordination i expect it to kind of complement and provide an alternative to them yeah like and i think that's something that it's so well on the way to doing quite successfully well vitalik this has been a fantastic deep dive into your article you know one last question that is maybe more in the current event camp but i think um maybe fits the mold of this this article before we move on to roll-ups so ethan price just recently hit all-time high and of course we talked about how uh these cryptosystems are very much uh psychological systems as well as social systems all of these things do you think eth at all time high

is good for the collective psychology and community of ethereum or or bad because i i think you know somebody could make the case uh for either or what's your take good question um and i think all-time highs are definitely and if psychologically good for a community um it's the thing i think that's uh like in general i feel like whenever there's a bull run the first half of the bull run is very healthy the second half of the ball run is very unhealthy and and uh and oh crap did i just um corner myself into a price prediction by implicitly calling now the first half of the ball first ever metallic price prediction

[Laughter] don't um well okay what i will say is that to me the present moment kind of psychologically feels like the first half of a bull run but then again like at the same time these are in some ways fundamentally new and uncharted waters and the the trends can easily break and it could easily be one of those bull runs that just like abruptly ends during the first half right like that happens all the time like the uh the xrp bull run uh definitely abruptly ended um when uh you know the sccm kind of delightfully sent uh santa thing crashing down um the but

so in terms of kind of people's psychological experiences i think it definitely kind of feels like it's in this uh sort of relatively kind of healthy phase right now um but it is one of those uh things that inevitably ends up kind of flipping into a less a less psychologically healthy um healthy phase especially if like it goes on long enough uh that people start feeling like they're entitled to it and and like that's always happened historically right and there's always been these periods where people just like almost stop working because they're just too focused on on the price and and then also like in in addition to the effects on the

psychology the problem like there's also things that happen in bull runs like you know transaction fees going up really high and that's definitely something that i'm uh hoping that uh crypto i'm sorry that the ethereum ecosystem kind of solves very soon and we already have the technology right zk roll ups have been running for months um optimism um announced the kind of very their very first limited main net uh last week um but like we do just needs to get to the point where these signature scaling techniques uh grow-ups in particular are just actually able to absorb even the existing demands right because like right now transaction fees are high like

i yeah i tried out the social recovery wallets for like argent and i looked at the transactions and like the the recoveries cost fifty dollars and that's just crazy right like no no this stuff needs to move on to roll-ups very quickly if you are looking for a product that connects your fiat bank account with d5 tokens and products you need to download the dharma mobile app dharma is a non-custodial smart contract wallet and comes with a bridge that connects you right into your bank account drama is the fastest and most efficient wallet between your fiat and your bank account and any token on uniswap or even any vault in urine with dharma you can get over 25 000 per week into the d fight universe and

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your assets trade them on unit swap and then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the power of ave at ave dot com that's aave dot com this is an incomplete guide to roll ups so vitalik can can we go through the incomplete guide uh to roll roll-ups and maybe direct this to someone who has heard about the buzz that maybe uh roll-ups are ethereum's next big scaling solution right and it's kind of the promised land of reducing gas fees tell us what are roll-ups where would you like to start with this sure so roll-ups are a member of this

family of scalability solutions that we call lovelier to scaling right so like there's this long-running dichotomy between layer one scaling and layer two scaling where layer one scaling says we increase how many transactions we can process by making the blockchain able to process more transactions and layer two scaling says we increase the number of transactions we can process by moving work off chain and instead of like running everything on chain directly we only run a kind of more limited verification activities on chain and so we use these more clever contraptions to remove to reduce the need to use the chain in the first place

and you know in the case of bitcoin like this was basically the topic of their civil war but in the case of ethereum you know we're basically doing layer 1 and layer 2 scaling at the same time right we have sharding for layer 1 scaling but we also have this very kind of healthy and rich layer 2 scaling ecosystem and i talk about the three i'm scaling approaches so there's channels i mean plasma and rollups and channels are this method for optimizing one-to-one interactions uh so for example channels are really good at the use case of like let's say i'm selling you an internet connection and you want to uh pay me per uh per

megabyte right and then like what would happen is that like i would start for uh giving you an internet connection and then every time it would um reach one megabyte like you would just send me these off-chain messages that i call tickets right so your first ticket would be a signed message it just says i'm paying you 0.001 your second ticket would be a message that says i'm paying you 0.002 and so forth and the poi the way that this works is that i only needs to actually put on chain the very last ticket or the highest value ticket that you send right and so basically what you're doing is you're just you're making these payments but you're not but we're not yet committing them and you just constantly keep paying more by just replacing these

payments with higher value payments and then when i publish the last payment on chain i'm basically kind of settling all these payments at the same time and it's happening in one transaction and there is a bit the smart contract implements this kind of interaction game where basically like let's say if you um try to submit one of your tickets um that has a smaller payment then i can challenge and i can send your ticket that has the higher payment or if um i just disappear completely then you can send your your own payments or your um your own ticket to uh close the channel and get your money back and so on uh so channels are good for bi-directional payments and

there are things like the lightning network and raid in the tried to expand that out to broader payment networks but they also do have some weaknesses right they're fairly complicated to deal with they have these high capital requirements and so forth then there's plasma and plasmas this very technically clever construction um that you know it turns out plasma is like really amazing for dealing with the non-fungible tokens um because it's just like the whole idea with plasma is that you basically like assign every unit of an asset a different id and then you have this kind of merkle tree contraption where you basically if an asset has some some idx

then the transaction that corresponds to that address goes into a work which we add index x and then you publish the merkle roots on chain and then if someone who has like some asset x wants to withdraw it then they would publish an operation on chin and then they would have to provide that merkle branch and if someone else wants to challenge them well they can do that and then all the challenges happen like just by providing these merkle branches so plasmas is really clever thing it's good for asset transfers is good for payments that can be due can be used for exchange uh so the omg network is uh has been doing a great job of uh kind of pushing the plasma vision toward its uh uh logical conclusion as basically and

basically doing as great a job as can possibly be done with it so very happy that their work exists but then we move on to the third solution which is roll-ups right and roll-ups are a fascinating class of technology because in some ways they're not a full layer two scheme right and what i mean by that is that in a traditional layer two scheme all the data and all the computation of at least each additional transaction is fully off-chain right like in plasma you do have to publish miracle routes on chain but that's 32 bytes it's 32 bytes if there's 10 users and it's 32 bytes if there's 10 000 users in a roll-up you have to publish like it looks like

somewhere around like 10 to 15 bytes of data on chain for every transaction now you you are able to move all the computation off chain and you are able to move most of the data on on off chin but you don't you do need to have like some amount of data on chain for every transaction and it turns out that the ability to have a data on chin basically just gets around some very fundamental game theory issues that have to do with data availability and in my blog post i linked to this um a youtube video that i made i think it was in some stanford conference or meetup or one of those where just talk about like why data availability is hard

and like why there's these complicated game theory issues around like you just like basically you can't have us a fraud proof system for data the same way you can have a fraudbear system for computation and rollups or plasma and channels kind of get around this issue by relying on this explicit concept of owners that basically says that like every asset has an owner and if the owner for that asset misbehaves then the system can fail but the system can fail in only one direction and that's the direction basically is that the owner loses the asset um but in a roll up you actually can just make a hard guarantee that says the state definitely will be processed correctly and it turns out that that's really important if you want

applications to become more general purpose right because in more general purpose applications like it's just you can't map assets to owners right like who is the owner of uniswap is so the easiest example right like there is the there is no single actor who's kind of the logical beneficiary of everything that happens inside of unit swap it's just this like automated thing that exists on chain and it benefits everyone and it's owned by no one um so then i get into what basically what is how does a rollup work right and the core idea of a rollup is basically um that there is a smart contract on chain and that smart contract maintains a statement it maintains basically a

merkle hash of all this state inside the rob so that means all the account balances all the contracts code everything inside the roll up you have this merkle hash that merkel hash gets maintained by the roll-up contract um anyone can publish what we call a batch right in a batch is basically this collection of transactions in this very compressed form um together with basically a record of the previous state route and the record of the new state route so a batch is basically a claim that says if you start here if you start from this this statement and you apply these transactions then this is the new state grid now in reality the batch does by itself does not have enough information to fully compute the state uh the new state

route because if you want to actually compute that you need to have the merkle branches and of course you don't actually want to compute all this stuff on chain so instead what happens is that the roll up just believes the batches by default and then you have one of two mechanisms for proving that these batches are correct right so one of them is optimistic roll-ups and the other is zk rollups and here's where we get to the core difference between these two great families of our roll ups right in an optimistic roll-up what you have is a system where you basically kind of trust but verify right so the smart contract kind of trusts the batches by default and it

just accepts the results of the batches by default um but then if so like there are nodes in the network that actually do run the full computation and if one of them discovers that something is wrong then they can publish a challenge and if they get challenged correctly then that uh the bash that's incorrect gets reverted and whoever submitted the badge who loses their deposit and the challenger gets the reward and then you kind of continue from there and so optimistic basically says trust by default but if someone challenges then if the thing challenges and corrects then you revert it and as long as you trust that there is at least somebody online who can revert then you know the mechanism works now zk roll ups they use validity proofs

right zk roll ups use these kind of fancy cryptographic proofs that we call as zika snarks and they basically prove directly that the post-state route is a correct result of executing the batch on top of the pre-stated route and the way that these proofs work is really complicated uh you know i actually didn't know i i've tried to make a couple of explanations of this i'm sure i'll try making more explanations of this in the future but these are just incredibly powerful and just incredibly clever mathematical contraptions that actually let you make a proof of a computation that takes a long time to compute where that proof itself can be verified extremely quickly and this is what zk roll-ups rely on

so there's these fairly complicated trade-offs between optimistic and zk roll-ups right in terms of like the gap the fixed gas cost of each batch which influences how frequently batches can be published the uh withdrawal period um so ezekiel optimistic roll up some the the fixed cost per batch is much smaller which means batches can be published much more frequently zk roll up some have instant withdrawals optimistic rollups have withdrawals that take one week but um the thing that you can do if you want optimistic roll-ups to have instant withdrawals is you can basically have a kind of third-party market so basically like if i have um say one if that's being withdrawn in

progress then if you were validating the roll-up and you are perfectly confident that that what you always correct then what you can do is you can just buy that buy my right to one if for say one eighth minus a fee you can just buy up my withdrawal um rights for say 0.9999 each i would get my zero point nine nine nine nine eight immediately and then you would just wait a week and then you would get your one eighth at the end right so or your point zero zero zero one eighth no no sorry um i would know that totally sorry i sacrifice my rights of one instead i get point zero point zero point nine nine nine nine immediately you ask the buyer of the withdrawal pay me 0.999 immediately and you get the full one at

the end uh so like this is a technique that's um available for optimistic roll-ups to have instant withdrawals but it does have capital costs and importantly it doesn't work with um nfts because and uh nft with nft is inherently like there is nobody who has like a second copy of the same nft that they can collateralize but for coins it works amazingly um complexity of technology optimistic roll-ups are simpler um generalizability um optimistic roll-ups are easier to have a kind of full general purpose evm computation for and this is something that's really important right like uh there already are zk roll ups that are live and zk

roll ups um like there's a zk sync there's a loop ring there's um the diversify and those can be application specific but um it's very hard to make them support like much more general purpose computation whereas with an optimistic roll up like well we already have one on main net that's basically running evm code on layer two so and then per transaction on chain gas costs so this basically means like are the um the on-chain costs that you have to pay per transaction uh so this is basically paying for the 16 bytes it turns out that there's technical reasons why for certain types of

transactions you need more bytes than an optimistic roll-up than the ck roll-up and then there's off-chain computation costs so which are actually lower for uh optimistic uh uh roll-ups so than they are than there are for zk roll-ups so there's complicated trade-offs but my uh kind of opinion summing it all up is that i think in the short term optimistic roll-ups are likely to win for general purpose evm computation zika ups are likely to win for simple payments and like some very specific use cases but i do think that you know on a five to ten year time horizon zeke roll ups are gonna are gonna be winning out in all use cases so i think like the fact that you know teams like optimism

and orbit from are doing optimistic roll-ups today it's perfectly fine and i think it was it's completely the correct path um in order to just get uh some kind of scaling out for ethereum in 2021 yeah but in like in the there is going to come a time when zk roll up tech zika snark technology improves and ziki starks are capable of uh moving uh actually verifying evm computation now expect to see demos of zika snarks um you know doing things like verifying someone decoded this year but just keep in mind that there's a big difference between a demo and a production

implementation right like because uh once you have a demo like you still have to use you have to securely audit it you have to debug it you have to really make sure that the verifier is correct um and those things are hard right like i personally would much um rather trust um you know 10 million dollars of my own money to an evm optimistic roll up than to an evm zk roll up for at least the next couple of years but in the long term the gear roll upstairs i think are going to be everything and so like i get my advice to teams like optimism and arbitrarily is that i think they should start kind of ckfying themselves fairly soon like you know it's not so it's not so urgent

um that like people should lose interest in projects that are optimistic roll-ups today but i think projects that are optimistic grow ups today should have the attitude that they are not going to be optimistic grow-ups forever and they should have the uh they should start putting together their strategies for uh zking themselves so i g then i talk kind of more technically about what if i could cut in here vitalik i would just like to clarify one thing between optimistic roll-ups and zk roll-ups what what would you say is the defining characteristic difference between optimistic and zk roll-ups that makes you long-term um long-term belief in zk roll-ups like

what's the real what's the real uh separate separation between those two things that makes you optimistic about zk rollups long term sure uh so and one is like just zika roll ups have instant withdrawals even and without any collateral requirements another is that zk roll-ups do not have this kind of one of n online requirements in order for someone to be able to publish a fraud proof and that's valuable because like it open it opens the door for zk roll-ups to be until you go up and process things like you know tens of thousands of transactions per second where in a in an optimistic roll-up once you start having that many transactions

then you know it starts like it's use it starts becoming less obvious that there will always be enough honest to notes that are checking the that all the computations are done correctly um also the um the the data efficiency right like the the fact said that so i have a table a bit further below where i look at the mixer example and uh the it's uh one table further below um there it is right like and uh a mix the mixer only has a 77x scalability again an optimistic roll up at a 570 access scaling gain and a zk roll up and the reason why this is true is because zk roll ups allow you to have

a less data on chain because in a ck roll-up you only need to have enough data on chain to update the state tree whereas in an optimistic roll-up you have to have enough data on-chain to verify the full computation which is a slightly larger amount of data uh so i yeah like i don't know to be to be very clear right i don't think that these advantages are decisive in 2021 and like i think in 2021 like optimistic roll-ups and zika roll-ups are both totally fine we're gonna have these withdrawal markets i mean we're gonna have ways for people to withdraw from you know things like optimism and harvard from instantly and in 2021 and it ends 2022 and like

even going a bit further the fact that optimistic roll-ups just rely on queen evm verification and like the you know they have surprisingly simple fraud proof verifiers i think is a decisive advantage as opposed to zk rollups which needs to have just like this much larger and the complicated compiler code to convert uh solidity or viper or evm into arithmetic representations and there's just much more attack service for bugs in there but like over the longer time horizon those issues will get resolved and the calculus is like slowly going to shift toward the zk side so i'd like to take a stab at trying to

go through the history of this to lead into my next question ethereum l2 scaling started with state channels which were and the great thing about state channels is that you know it's just between two parties you can make any number of transactions without committing anything to the blockchain and then to wrap up your day you commit something to the blockchain that state channel ends and then you bundle up you know 10 000 plus transactions into just one little packet of data submitted to the blockchain that's great that's great for two parties or just a low number of parties plasma was an attempt to have one to many or many to many type of interactions of various types and there are different constructions of plasma that did different things but it's um

it ended up being weak because of this thing called the data availability problem which in in short is that it's hard for ethereum the blockchain to know about the plasma l2 chains and reason and know about how to manage that without without making assumptions and assumptions we don't like assumptions in the world of cryptography that's not that's not how we play in the world of crypto economics uh we'd like things to be secure uh and then so then that turned into the rollups revolution of the optimistic and zk flavor where there was a compromise made where we figured out we could actually just regularly submit you know some data to the ethereum blockchain to solve that data availability problem and so it's not we

aren't getting like millions of transactions per second we are still generally bottlenecked but the actual bottlenecks are actually still pretty wide and there's lots of optimizations there that can make them even even wider and that's kind of where we are today how do we know that we aren't how do we know that we are uh towards the end of this research and development process how do we know in like 2021 or 2022 we're not going to come up with this new scaling system what indications or evidence do we have that we have approached the end of this research and development phase that's hard to tell for certain like there's no theorem that says that like these are the only scaling mechanisms that exist and there are no others but i think like

there are kind of heuristic arguments that suggest this right one of them is just the windy arguments right like we've had channels and plasma and roll-ups and basically nothing else for something like four years now um i'm uh and roll-ups themselves like i yeah they were like in their current form they were kind of created in 2018 to 2019 but there was this much earlier kind of thing of shadow chains that i published back in 2014 that kind of is a prelude to roll ups so we've had a kind of long and growing time span within which we've known about these three techniques um and we've seen no others

another thing that like arguments that you can make is this mathematical arguments that basically says like if there are end users um how much data gets published on chain um not taking into account deposits and uh withdrawals and fraud and you can classify them very easily right in a channel the answer is zero in a plasma the answer is o of one so just the one merkel regardless of how many uses there are and in a roll up it's of n right so like there's one a bit of data per transaction and so that basically covers the space right now you might say well what is there are there things between one and and are there things that are like square root or like logarithm or some weird thing in

between and i think my intuitive answer there is just probably not because that just means that you eventually you have what less than one bid on chain per transaction and like how much can you actually do with that um but intuitively it just feels like those three numbers like zero one and just kind of cover the whole range and you know you can tell how with the increasing on chain load you have increasing capability right like plasma gives you increasing capability from channels um what the particular thing being just the ability to send off chain to new users who have not yet been inducted into the system and then going from one to n you have this other gain of capability which

is being able to go general purpose uh so [Music] like there is that kind of heuristic intuitive reason to potentially believe that like you know these three options just are the options out there and that everything we're gonna see from here is just like different permutations on that so i think roll-ups are definitely very exciting what's what's also exciting is we can uh begin using them now right so this is no longer hypothetical theoretical like loopering has one in production uh synthetics just released their version on optimism so it's going to be very exciting to see how both the optimistic roll-ups and the zk roll-ups play out i had one other question for you and then maybe we could

move on to social recovery wallets but just last question on on rollups how does eth2 kind of just to tie this out how does the eth2 roadmap fit with the roll-up uh roadmap i understand that um eth2 is going to provide a way to um like provide consensus on a sharded data layer which is going to make more space more sort of bandwidth i guess uh for for rollups in the future what's that going to look like and what's that going to do for ethereum's holistic scalability story here great question i think it's uh definitely very important to in a circle

back into yes answer this one um basically so we have this thing called the roll-up centric road map which basically says that now in the short term we recognize that there is massive fee pressure and roll-ups are the only thing that can relieve the fee pressure no matter what we do and and at the same time we recognize that for shorting providing sharding of just data so just having sharded blocks that just contain these blobs where you know you might have whatever data you want but there's no kind of on-chain processing of it is an easier problem to solve than than a sharded computation and so if you take those two facts together the thing that you realize is basically that well

what's a roll-ups need roll-ups need data and what's the scalability element of a roll-up the scalability element of roll-up is basically well how much data space is there that the chain has a consensus on and with the current ethereum chain that limit is somewhere around 500 kilobytes a block but with the shorted system you basically have like 500 kilobytes for one uh for each of these 64 blocks in every slot right so there's just going to be this much larger amount of a space and within that space um you just you know you can use that to potentially go up to something like a hundred thousand transactions per second that just with uh roll ups right and i

have uh some numbers i definitely encourage people reading the post it's also on vitalik.ca and i talk about some of the tricks that we use for data compression and some of the math that shows like how many data um how many bytes you need for a transaction of different types and like how much uh scaling gain you can get on a on a regular roll up and or on a roll up on each one and then multiply that by another 64 to get the scaling gains for roll-ups on youth too uh and so and just just to clarify here vitalik so um this data this sharded data layer is this going to be available to use for rollups before the eth1 and eth2 merger

um it can be there is work that needs to be done for that to happen basically we need an eth2 like client inside of each one and that technically requires like some eips on each one to be done which i think are like in the pipeline i believe for like soon after berlin or something like that got it cool all right well excellent this has been a fantastic article so of course an incomplete guide to roll-ups um i didn't feel like that was incomplete what about you david i felt i felt like that was a very complete guide to roll-ups yeah um at least for me maybe that's a good question vitalik what would a complete guide to roll ups uh yes one thing i say is that the guide is

already wrong so uh one of the tables um line four general purpose evm roll ups are already close to mainnet well as of now the optimism roll up already is on main net at least for uh synthetics so that's uh uh progress and i think like this is just uh evolving technology and people are going to come up with you know new and more clever tricks and like and i i wrote this blog post with the goal of it being something that people can kind of go back to and just get their just primer on what the heck roll-ups are even for years into the future um so i expect there to be more and more things that end up just inevitably not being part of the post

but that you know continue improving uh roll up uh people's uh roll of users experience well excellent well thank you for that guide all right let's uh let's flip to our third and last subject for today this is all around the subject of social recovery wallets so we were talking about um scalability i suppose with with roll ups and you know the uh a typical ethereum user feels that pain when they pay for a 20 uniswap transaction right um another pain point that uh ethereum users feel is around securing your private keys and this is definitely a hindrance to to mainstream adoption i think a lot of crypto ends up

in exchanges just because people are uncertain they don't feel like they have the tools or the the competency to secure their own crypto and of course there's always like a right of passage coming into this industry which is definitely something that we should have a band-aid for yeah absolutely um you know but and of course you know not your keys not your big not your crypto as as our friend andreas says and certainly if you want to become bankless and go bankless you can't keep your uh private keys inside of a crypto exchange so right now best practice is we have things like metamask which is a an extension of the driver if you want to be a bit more secure you can

use a hardware wallet but vitalik you're presenting kind of this maybe this third way this idea of a social recovery wallet so could you give us a quick synopsis on what a social recovery wallet is and uh why it's important where do you want to start with this one sure and i guess we can just start off with what the thing is so if you scroll down to control if social recovery is better then there's a diagram a bit further down there we go yeah um so basically the idea is that a social recovery wallet is a smart contract wallet uh so your if you use a

social recovery while your account is a smart contract and your assets would be in that smart contract and the smart contract has these rules that say that there is a signing key and that signing key can be used to approve transactions and then you have this concept of guardians right and the idea is that there's a set of some number of guardians at least three i recommend even going up to five or seven if you know enough crypto people um and of these guardians a majority of them can cooperate to change the signing key of an account if you lose your signing key uh so the goal of this is basically just account recovery right and account recovery is just something that everyone ends up needing from time to time and and uh

it's something that like lots of services really don't do well um right uh so like if you lose your google or um account then you have to go through customer service and often it's even just very hard to recover your account and like i've known people who are just never able to do that and and in the case of crypto of course um you know if you just use a regular wallet well if you lose your password you're screwed and there's just so many examples of people who just lose access to their account and they end up being completely screwed whether they lose it because um they forget a password or because like something they lose their computer and

they just never had a backup anywhere or because they um um reinstall their operating system and they forget to copy over the files that happen to contain some of their keys like there's just a this kind of whole set of reasons why or you know their funds are on a paper wallet but they forget the piece of paper their funds are on a hardware wallet and uh something happens to that hardware wallet there's just lots of reasons why you can lose your funds and so social recovery basically says well you can identify you can specify some set of guardians and this could be institutions this could be your friends or family this could even be just other devices owned by yourself

and the majority of these guardians has the ability to basically reset your key so this is a pretty simple idea quite honestly right so you know problem that we're solving is uh custody of private keys is hard and people can lose them and if they lose them it's a disaster you lose your entire crypto so solution is twofold you have a smart contract based wallet and then you have this squishy meet space idea of guardians and people who have a google account are probably uh used to this you know there's a setting in your gmail account where um you can you can set uh you know your spouse or a friend's email address to to recover your password right this is a similar idea only you're delegating that guardianship possibly to some some some

other private keys this could be your friends and family this could be um other devices that sort of thing this feels very squishy though really importantly not one of one it's mfm right so that's like that's a huge difference between like say gmail's recovery email feature right so it would be it would be a set of guardians that would then when they come together their powers combined they can restore they can restore your wallet so interestingly enough wechat already does this right like if you spin up and like if you um [Music] just wants to log on to your account and you know you don't have a password or you don't have some other authentication then

you can create the account and then what it does is it basically uh requires you to like it gives you some contacts i think i believe it's something like that it just automatically chooses some context that you frequently interact with and it sends them a confirmation code and they have to give you the confirmation code or you know you have to give them the confirmation code and they have to like type in a chat with you i forget it's one of those two uh and so like basically if you get like multiple of your frequent contacts um like type in these contribution codes then you can um access your account right so so two things i'd be worried about with this vitalik right so um

the first is okay you said you're essentially putting your private keys inside of a smart contract wallet right and there have been a smart contract now your private keys right so this is basically saying that your instead of your private keys controlling funds your the smart contract is controlling funds ah right yes the ability to replace your private keys if you lose your threat of privacy i see right and that's uh that's an important distinction how however um there could be a bug in a smart contract wallet um there could be an issue with that smart contract while it introduces some additional code complexity in the process so that's the first question i'd have for you how can we get comfortable around that

the second is it does at first glance feel kind of squishy to um you know start trusting meet space social relationships with this sort of thing like people are probably thinking as th as they're hearing you talk okay who are the like five to seven people in my life that i i would actually trust with with with something like this and how much do i actually trust those relationships can you talk about um both of those i guess security vectors right so good important question and so i think as far as like security of a smart contract well which goes one important thing to keep in mind is that i think um that

the security of the uh like the code needed to implement this recovery mechanism is very small right it's maybe even just something like 10 lines of code and the reason is that like you can already abstract out the multisig part into a separate mechanism right and we've already had multisig wallets that work for years there's a the multisig wallet that stores uh the you know 600 million dollars or whatever it is of the ethereum foundation's money there's the more recent gnosis safe wallet that stores lots of projects money and it's been formally verified and audited many times so that's been increasingly trusted by

the community uh and so the majority of the code is uh something that or like you can just delegate to a multi-sig wallet and that's already been tested and then the rest of it like it is something that would need to be written and it is something um that would need to be audited and verified but it is a relatively small kind of 30 line of code a job relatively speaking and not you know some really complicated thing uh so that's one thing the answer or one and and the other thing to keep in mind is that like i'll talk about this a bit further down but um realistically all of this stuff is going to happen inside of rollups i can even expect like a roll-up project

to just like incorporate some form of multi-sig or social recovery wallet just natively and i think they should do that like i think the move to roll-ups is a great time to start moving people onto these more secure paradigms uh so and that's one answer and then in terms of like you the question of like do you trust your social relations uh yeah have a paragraph a bit further down right where it's basically say that there's this really nice security thing that you can do which is that your guardians number one they don't have to be publicly known and number two they don't even need to know each other's identities right so like you for example could use as your guardians or like you

know your mom um if you work for a company your boss then some institution uh some you know friend from high school and these can be like you want to use some guardians from different social circles that you have right you want to have guardians that ideally do not even like know yeah each or at the very least don't closely talk to each other uh and basically like the reason why this can be accomplished right is because like either you don't needs to publish guardians addresses on chain until you actually your recovery or even more securely you can just have each guardian generate a new single purpose address that they would use for each uh

upper well for each wallet that they're guarding uh so and and i mentioned like it's recommended to choose a diverse collection of guardians from different social circles one institutional guardian would be nice though there are privacy reasons why you might not want to do that either and like this basically it would just make it very hard for these different guardians to collude right so like for for example you know like i know like for you or ryan right like if you become a guardian for david then like how the hell would you even start figuring out like who of david's other contacts you're gonna collude with to steal all this money that's a good question i'm thinking

about that now vitalik who who indeed question one do you even know and question two once you start poking around and asking what's the probability that you're gonna get up to four or seven before one of these people rats you out to david and david just like switches over his um um guardians to someone else and cuts off contact with you yep that's probably pretty accurate and considering david and i have never met in real life though we have spent hours upon hours in digital life uh together uh means i don't actually know some of his irl um relationships and friends and family and it's gonna stay that way [Laughter] yeah well so so vitalik do you think

this kind of solves private key management or this could solve private key management basically i think it's the best solution that we have right now and uh i think it would be great for the ecosystem if we can make a kind of a strong push toward implementing this kind of technology and we do have some of this today with um argent is one definitely bankless listeners will be familiar with loopring you mentioned is another so there are attempts with it right now and you mentioned i think um earlier in our discussion that uh you tried to do a recovery with with arjun just to sort of test that out and um it was like pretty expensive there's like a 50 gas fee associated with it so maybe we could just tie this off with what

you're talking about earlier is migration to layer two and roll-ups can kind of solve the remaining challenges so you said some roll-up solutions might even be able to have to ship basically a social recovery wallet right out of the box which would be super cool so it sounds like rollups have the capacity to innovate faster and try new things um that the main chain really really doesn't have that that capability but what did you what did you have in mind about this intersection of synergy between layer 2 and social recovery wallets yes so there's i think a couple of problems that roll ups solve at the same time and so one of them is

that ethereum has this very subtle technical weakness which is this kind of the fact that only externally owned accounts can initiate transactions and that was just sorry could you define externally owned accounts for our listeners yes yes uh it is an account which is controlled by a private key the um if an account that's not an external account is a smart contract so there's only two types of accounts there's accounts the addresses with private keys and then there are addresses that are smart contracts correct cool uh so and only elas can initiate transactions there's no ways to initiate a transaction from a smart contract um so

this creates problems right and like actually i know have either you use the tornado cache before i have yes okay so you remember how when you do a withdrawal from tornado cache uh you have to select a relayer right and you're not signing a transaction you're like signing a message and then or actually i think you're not even signing the message you're just like providing the note and someone else sends the transaction right like so the reason why that happens is because in what what's happening in a tornado cash withdrawal is that you're trying to withdraw money in xero knowledge to a complete new address and so you do not already have funds in that address so you have no way of paying the transaction fees from an ela and the

money you're trying to withdraw is coming from a contract and so the transaction has to start from some eoa and that eoa has to be provided by a third party right and the real layer is that third party they just do this as a service in exchange for a fee now this is inefficient and it added significant complexity to the tornado cache and it's all it also adds significant complexity to smart contract wallets i think it might be the biggest ux barrier that smart contract wallets um have uh and the re a big reason we don't have more of them is so like argents like they basically run their own relay all right and you know loop ring well they're a roll-up over so they're kind of part of the solution here and i got i'm definitely hoping

that argenta's gonna start uh doing things with uh roll up soon um but if you have a any of these uh wallets uh that's uh a smart contract that's not on layer two then either you need a relayer or you need this kind of somewhat a bulky scheme where you need an account that has most of your assets and then an account that has the rest of your assets to pay fees and that account has to have quite a bit of if just in case transaction fees get very high and such it gets annoying um so there's two ways of solving this problem one of them is a kind of decep decentralized general purpose real air network and the gas station network is doing a great job of this

um but the other thing is that you can just move to roll-ups and roll-ups can just have better support for just allowing transactions to start from smart contracts directly so that's the first problem and then the second problem is the high transaction fees right like you you can't have you know roll up recoveries cost fifty dollars but you know in a uh layer two system if everything is done inside of a lawyer two recoveries could potentially only cost a few cents uh so like in general like i think the move to layer two is this great opportunity to just do lots of things in a way that's just much better than we what we've been doing before um you smart contracts by

default are a great example of this and optimism have already kind of taken some steps in this direction um which is a nice like i think every account in optimism is by default a like simple smart contract wallet that can be that the user if they want you can replace with a different one um so yeah again a there's a an excellent synergy between lawyer twos and better security so oh sorry go ahead didn't i just wanted to say oh just i i did also once at some point circle back to kind of the relationship between social recovery and their crypto values maybe we should that's where we can tie

this conversation off but but before we get there i do want to ask because does that mean that you're you believe that the trend for the average individual who engages with ethereum is going to move towards layer 2 smart contract wallets yes interesting interesting and and people will just perhaps be able to execute l1 transactions from their layer 2 smart contract wallet by proxy so like they'll they'll make a transaction with their smart contract wallet and if they want something to happen on chain on the ethereum l1 it can be initiated from that point interesting right well so so we have to distinguish between like layer one smart like smart contract wall etcetera on way or one versus

that are inside the roll-ups right so like i think smart control wallets are better either way but like they're definitely much better inside of roll-ups and i definitely expect more and more of people to be over time to move toward being inside roll ups natively so just being able to do lots of things and just like do all of the ethereum that they want to do just by like floating between um you know optimal simon arbitram and zk sink and blueprint and i think we're going to have better and better techniques for moving between those systems without having to hop onto the main chain first but and that will also reduce transaction fees massively which will give an opportunity for this uh social recovery

stuff to happen better david our k our kids may not even use the main chain that's what visalike saying right like they might live their whole d5 ethereum life on a layer two chain completely so well that kind of begs the question say i have a smart contract wallet on the l2 and i'm there because of just the all the ux benefits that it provides me um and i want to swap tokens for one token for another because of whatever reasons that people do that um and the uniswap l1 is perhaps not necessary because on loop ring there is another amm that because i'm perhaps i'm on the looping and l2 i just use that uh exchange feature there instead

so then at that point what does the if if all the economic activity is kind of put into l2s what does the l1 do like what kind of economic activity would you expect to see on the main ethereum one if that becomes the case um in the short to medium term i expect like high value users to stay on 0-1 just because they can afford to pay the fees and that they get like the fees are a lower cost than the uh the risk that people perceive of um l2 is breaking but you know in the longer term the risk of l2 is breaking is going to subside and in which case l1s are mainly going to consist of like layer 2 is publishing these batches and

batches and proofs and like users moving between rollups and some in some cases that's extremely interesting that kind of makes my my head turn to the whole scaling metaphor of xbox games where um people or xbox games when the xbox first came out were like kind of the graphics were rudimentary the very basic but then xbox games towards the end of the xbox live cycle and i'm specifically talking about the xbox 360 here like the the big xbox that took off the most amount of time games towards the end of the xbox 360 lifestyle were far more efficient far more graphically like beautiful and complex and rich but yeah it was the same hardware it was the same hardware all

through and through and that seems to be kind of how what you are alluding to with the ethereum l1 over time is that we are actually just making better use of the same computational capacity that ethereum offers is is that kind of where you're getting it and then my other question is um these the ethereum of course is a place of legos we have different things different applications that we can plug into each other what we're talking about here is the lego between a smart contract wall and an l2 talking about the efficiencies and ux benefits that we get there what about the lego of decentralized identity how does the combination of decentralized identity and smart contract wallets how do those things interact

um i guess every question yeah you know i've talked about identity in a lot of different contexts i guess so the question is like there's different kinds of identity right like there's identity of like you just authenticating yourself as being the same the same actor who did some other interaction previously which is just like maintaining a persistent account there's identity as in proving things about who you are in the real world there is identity as in kind of the unique human problem creating accounts that each person can only have one of and like those are all they are kind of different primitives that have a somewhat different properties uh so i view like social recovery wallets as being like

in like a big step forward for the first kind of identity this kind of maintaining some kind of like persistent ident um thing that you can represent yourself to um as to uh services um and other people uh so like and as i mentioned before this is something that like could potentially end up kind of going like even being used for just centralized web 2 services right like right now if you log into many services a lot of the time you're logging in with with google or you're logging in with twitter or logging in with facebook and like you're basically using an identity that's controlled by google or twitter

as or facebook as the mechanism by which you interact with all these services um but here like the thing that i think could eventually happen is people using blockchain social recovery wallets um or wallets with like some kind of other recovery mechanism of their choice as that identity right it's like ultimately if we can create something that's like as secure in terms of like anti-theft and ent lost properties as centralized services uh provide which i think we can because i think people overrate how good these centralized services are anyway then we can create something that makes sense for even people to use to just

interact with um all of these other things too um so i guess yes you know this stuff is uh a strong path towards solving at least like one of the problems that we that we put in the identity bucket so vitalik um thanks thanks so much for guiding us through social recovery let's let's tie up the discussion with this critique maybe address the person who's thinking well you just introduced something that i thought blockchain was was going to remove um this idea of trusting people right now we're back to trusting people again vitalik that feels like a betrayal what's your response to that critique right so i think this kind of comes

like really ties into what kind of this difference in perspectives about what you know crypto is for and like the kind of ideology and vision that different projects have and i've always interpreted ethereum as you know not being about this kind of mountain man i'm going to do everything uh my myself mentality it's more about this idea that you know we're going to use like cryptography and economic building blocks like you know eth as the monetary layer and general purpose code and the ability to write these um contracts that can control things and these tools are basically going to empower people to and give them choice

and like creating mechanisms right and they can empower people to give choice in like whom to trust also giving creating can strange forms of trust that basically say i trust you to do some things but i don't trust you to do everything uh and this is something that i think like we've been seeing in ethereum more broadly and it's like this big kind of design philosophy right that like it's not about trying to eliminate trust completely um it's about basically saying well we have these technological tools and we can create systems that have these much lower levels of trust and we're going to create but

where trust is still this important ingredient but we just use it in ways that's uh that's that are kind of much more clever and we can also just uh like right so like one minimize it two try to use it more um try to use it more intelligently and three as much as possible give people a choice of like what basically um what trade-offs they take i mean like this is a something that like ethereum is like doing on the the block chain layer as well right like there's this discussion around proof of stake and weak subjectivity and how proof of stake makes this trade-off that you know if you're

logging onto the network for the first time or if you've been online for like a a a very long number of months um then like you do have to kind of get your view of uh which uh chain to follow from from somewhere and but the thing that you get in exchange for this is just this vastly more efficient blockchain with a much lesser resource consumption right and i think here at the same time it's also this very similar principle right like it's basically saying that you know we're going to be moderate but we're also going to say um that just this is this uh like this is this playground for just building different ways for people to interact with each

other and so like let's just actually use it and let's say just build really interesting things with it well vitac i want to thank you for being so generous with your time and coming on the program and talking about all these various subjects with us i know that like historically in the in the past you would put out a blog post and then people would kind of become woke to it like one or two years later as like oh like we finally integrated what vitalik was talking about you know two years ago and i i actually hope i think that i see that there is actually a faster iteration cycle between some of the things that are coming out on your blogs and some of the development that we're actually seeing out in the world of ethereum and the greater world of crypto

i i hope that actually some of these conversations that we're putting out on the bank list programmer are helping with speed up speeding up that iteration cycle but anyways i do totally uh agree with you that the future of 2020 and maybe 2021 or that the future of 2021 and beyond is very dominant in the world of you know very strong sexy ux of smart contract wallets as well as the integration of you know the ease of l2s and and all the other things that you have written on your blog post so thank you for coming on and sharing those ideas with us happy to be here all right guys as always want to end with this none of this was financial advice of course ethan's risky so is d5 so is crypto you could lose what you put

in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot