The Invisible Infrastructure Play: Ethereum's Long-Term Value Capture Vision

Transcript

[Music] testing. Okay, perfect. Hi everybody. I'm James. I lead Ecode Dev at Ethereum Foundation. Um, that's currently about 45 people, but you will see a restructure and reorg of the new Ethereum Foundation coming out on Monday 7th, 8th of July. So, but I'm happy to talk about it after the talk as well. I did the classic thing with this talk and definitely didn't change it last minute.

So, it should go very smoothly. Um, but I'm going to try and explain how I think about Ethereum as an infrastructure layer and I just let some people come in. Okay. So today I want to talk to you about infrastructure specifically the patterns that emerge when we talk about infrastructure. I think new infrastructure emerges when it evolves and eventually becomes essential. Why this matters particularly I have made it a European slant seeing as we're in Europe and I think this is all comes down to digital sovereignty. The web 3 community talks about decentralization.

A lot of central banks, governments, enterprises talk about sovereignty and let's dive in. So we have playing in someone else's playground. It's a simple observation that Europe's digital infrastructure challenge has become owned by cloud computing is owned by Amazon, Google and Microsoft. They own about 85% of cloud computing market. If there was a digital war, Europe would have not a leg to stand on in terms of political leverage and economical leverage. If you look at payment networks, Visa and Mastercard, that infrastructure that's built is not owned by Europe or um I would say it's owned by the USA, Asia. They're writing

the narratives currently. And that's infrastructure layer is significantly important. But this isn't about market share. It's about policy influence. So as you can see before the internet European companies were dependent on proprietary networks by IBM and the key question is what if the next layer of digital infrastructure is being built right now and how can the world help shape that infrastructure layer. So how infrastructure becomes universal to understand that opportunity let's look at how infrastructure actually evolves. There's a multiple consistent pattern we've seen. So the internet started with Arponet in 1969.

This was completely proprietary, military controlled and then in 1983 they opened it up to TCP over IP. It was taken by um 1995 and then today you have about 5.2 billion users. It captured zero value. No one was going to come knocking on your door and say, "Hey, that internet you're using is going to cost you 5,000% extra." So it got adopted around the world. Linux was started by one guy as a hobby in 1990 and then in 1996 we had a situation where it was ready for enterprises.

Linux to this day is in 100% of supercomputers and I think over 90% of servers. Why? Because it captured very little value. The Linux foundation is worth about 300 million which I think we could all agree is very little value for something that's in that many servers. Um the idea is is that open permissionless neutral infrastructure always wins. If we take stable coins as an example, if you look at um I know the screen's there, Binance, uh Gemini, um these were very exchange specific and you had USDT and USDC neutral platforms are winning.

Why? Because the user wants flexibility. The user wants to be able to modularity and they want to be able to use it across different platforms as well. So the key insight here is about user choice not technology platforms and I think that's what we are trying to achieve with Ethereum as well building a neutral infrastructure but users choose infrastructure that works everywhere. Another example, you've got MetaMask. Again, a neutral player, can go over across many different networks. Has 30 million different users. Coinbase fairly successful with 8 million, but it's limited because it's open on Coinbase and Bass only. So, people you choose a

neutral network they can use across different platforms. UniS swap's interface is fairly similar as well. It's got four million people across 12 different networks, but they're pushing people towards uni chain and they have their own agenda there. Whereas it's not a neutral open platform. Um, this pattern that keeps on emerging is the way I think about Ethereum as well. And this is a narrative that I think has got a little bit lost in terms of what Ethereum is trying to achieve. So why neutral infrastructure wins? Let's talk about network effects in economics. more users make the infrastructure valuable. There's no gatekeeper. There's no permissionless.

Anyone can just show up and build on it as well. And the more applications that come onto this as well. This is what keeps um competition healthy amongst the app layer, but also the permissionless ends up driving the best solutions on top as well. And Ethereum is not trying to capture maximum value. It is wanting to become a neutral layer similar to the internet and Linux in my mind but allow other apps to capture value on top of that as well. And this is fundamentally different from platform like uh take Amazon, Uber, Airbnb where one company controls all the rules and extracts all of the values. I said it to uh a central bank the other day where I was like, you

wouldn't build on another country's infrastructure because you have political leverage and economic problems as well if they wanted you to, but they wouldn't build on yours equally. So, you need a neutral open platform. Here we have miss the missing neutral trust rail. If you look at banks, it's bank dependent, geographic, limited. Stable coins is a narrative I'm sure you're all very aware of in terms of how that's doing as well. And you've got agreements and coordination. These are all things that I think blockchain can have a big influence and a big change in how the world interacts with it with itself at the moment.

um the internet before TCP over IP had lots of different proprietary networks that couldn't talk to each other and that that stifled innovation and I think this is something that we can actually have way more innovation on different um use cases financial and non-financial so enter programmable infrastructure that neutral alternative is already being built but there are lots of um countries regulators and enterprises not quite sure how to interact with it as well. It's a bit of a scary thing for them as well. I feel like them understanding this narrative that they can actually control what they put on there, choose who they interact with, but not get taken advantage of and not

be held accustomed by a platform is a really strong narrative that Ethereum has not been talking about enough. Um, I think the point here is that um this is an infrastructure development and not a speculation. We're trying to build something that gets embedded and everybody can benefit from having a neutral part of it as well. If you look at um platform versus infrastructure strategy, this brings us to a strategic choice. Do you build a platform specific solution that you have high control but limited reach or do you build an infrastructure where you get network effects from day one?

History shows us the answer. So, if you look at Ledger, a European company that built on open Ethereum infrastructure, they become the world's largest hardware wallet vendor, and I think they're doing $460 million in revenue. Um, they didn't try to compete with infrastructure, but they built on top of it and focused on application innovation. And there's plenty of other examples like that as well. So, early infrastructure adopters help shape the standards. And this is where I don't think we're having enough conversations around what this infrastructure can do. So this brings me to my final question. In 1990, European companies adopted internet or should it stick with priority networks. In 2005, should it move to US cloud infrastructure

or today? Should it use European companies be building on programmable permissionless infrastructure? What did we learn from the first two decisions? And that infrastructure timing really matters. that participation shapes rules, but late adoption means accepting other people's standards as well. So, will the next protocol layer being written help Europe or hinder Europe? And will that infrastructure layer make a difference to the world? Um, I thought I would had a 10-minute talk, not a 20-minute talk. So, I'd like to throw it open to questions, but I hope that's given you some good food for thought about what Ethereum wants to achieve in a infrastructure layway.

Does anybody have any questions? Any question? Thanks. Um, yeah, I guess I was just wondering, are there any conversations you're having with uh stakeholders in Europe that you're finding interesting that that you could talk about? Um, stakeholders in terms of uh enterprises governments and Yeah. Maybe the the people that you might want to influence to be building on this programmable infrastructure.

Yeah. Yeah. And a lot of them are very scared about it or a lot of them have um education they learned 5 years ago about blockchain networks and it hasn't been updated. So there's a huge education burden there. They have very slowly come around to the private networks don't work. The Australian stock exchange spent $260 million on a private network and slightly and quietly closed it. Um IBM had a private network and quietly closed it. these companies don't really have an incentive to talk about these failures in a big way or write blog posts about it. So it feels like a lot of companies have to learn the hard way.

Um but there are now a real sea change. There's three Dutch banks that are going to be launching on Ethereum mainet soon and they recognize that per public permissionless blockchain is the way forward because they need to integrate with other other things to get the assets moving and to get people trading and using them. So I think there is there's definitely becoming two parties. I would say the regulations I don't deal with them too much but the conversations I have had they are still left very confused about it's certain aspects like the GDPR one of is the wallet address personally identifiable information and they get very hung up on things like this whereas actually I think they don't rec they they they are

starting to recognize that digital sovereignty is a big problem. Maybe in the future when we're having digital wars, they'll start recognizing the need for an open permissionless infrastructure that nobody can control. And I think they're are very sensitive to being geopolitically influenced. Thank you. What was that question? Petro, can I question American commission is discussing possibility to um enact special requirements for smart contracts to make it standard. What do you think

about this? Um sorry, say it again. They want to make special standards for blockchain. So any blockchain that will be used in European Union has to be complied with these standards. So it can um lead to the situation when the old blockchains they will be reg regulated and can be stopped by the government. So this is one of the main point of any standardization. From one side they want to secure the users but from other side they also want to have um opportunities to uh regulate it and to inflate it. What do you think? Um,

I hope I answer this in the right way. I I think a lot of these um the way they're trying to control blockchain is actually because they're very scared of it being permissionless and they feel like this be out of control. Um, somebody wrote a really good paper actually about incentivizing less control because then there's less chance that someone actually takes advantage of you. So, I think they're I think they're going around it in the wrong way in my opinion. But I understand where they're coming from because they're looking to protect things, but I actually think in terms of that there'll be a lot of blockchain activity going out and use and being used outside of Europe and it will stifle innovation in Europe until they actually come to the table and think of these things through a little bit more.

If you think about the US dollar in my mind, the US government suddenly realized that the US dollar could be cemented around the world worldwide by stable coins. So all of a sudden they started making legislation actually oh we can embed US dollar very deeply into lots of different countries and economies which gives us way way way more power around the world. So, the US government caught on to this and the Europe made a knee-jerk reaction with their CBDC, with their wholesale CBDC, and we will yet to see how that goes when they launch that in October. Um, great presentation. Um, I have a question and this comparison isn't perfect, so that's why I'm curious to hear your thoughts. So, now, uh, you said Linux, like the open version is the

most widely used in the world, but compare that and the Linux foundation is only worth 200 million, I think you said. and then compare that to Microsoft which may be used less but Microsoft's one of the more valuable companies in the world. Um so what are your thoughts on like valuing with like the asset um even if maybe the infrastructure might be used then if that comparison is true would the asset then like not be as valuable compared to like a more centralized and um not credibly neutral service. Yeah good question. So I think um Ethereum offers a next generation should I call it that of open permissionless that captures some of the value but the idea is not to capture all of the value and the the the thing here is that we

want people to build on and add more value and take more value as well but they can do it in a way that there's user choice so you have to provide really good value otherwise you don't extract the value whereas Ethereum I thinkract extracts some value unlike the previous two examples I gave. But um I would say it depends. If we end up with trillions and trillions of dollars on Ethereum as an open infrastructure layer, if it's is if it's as successful as the internet, then it'll be worth a lot. But it probably won't be worth as much as if a private company took that over. And that's okay in my opinion. That's not what we're trying to do.

Any other question? Um, what do you think would be an easy win uh for Europe uh with Ethereum? I think they have less to lose than everybody else in a way and they think they think opposite. So with current digital cloud providers owning a huge amount of infrastructure with payment networks owning a huge amount of infrastructure that they don't control, if they started building these open standards and allowed open permissionless networks to build on top, maybe they would get more innovation in there as well. I think that Europe has a has two things.

They're becoming very regulated. There's a you know dirty secret that startups in Europe always sell to America because it's 10 times easier. Um, I have friends building AI products and they're based in Europe, but the paperwork is crazy, so they they sell in the US. So, I feel like there's a lot of different um, things that can actually move the needle for Europe. There's some extremely talented people that actually I think they're held back from a cultural perspective of if you're a startup and you fail, that's looked really badly, whereas you'd probably get a high five in San Francisco if you did it for the third time in a row. So there's a there's a different in culture there.

But I think the easy win for Europe is to open uh think openly about this and there's different there's different pilots you can run. There's definitely different tests you can do. I'm not saying go all out and go crazy, but they can definitely do different tests and pilots and things. And you know what the European Commission for their um to be positive about them, they are becoming way more open and listening to this as well because I I think they recognize that the next wave of digital sovereignty is being made right now and they have to make a decision on what they want to do. Yeah, you don't need a mic. You can go.

Yeah. Thank you very much. uh tell please mass adoption cames when everybody who use smart contracts they understand what they are doing um the question when we speak about the classicalally paper agreements I'm a lawyer so this is a painful thing for me when we speak about the paper documents agreements uh we can interpretate its terms and clauses how we see if we cannot agree between parties we go to the court but when we speak about the smart contracts there is no possibility to interpretate somehow but the result of these execution of this smart contract we see in the end of the day.

Um but people when they sign such kind of uh electronical documents uh agreement smart contracts they don't understand what they actually doing. How how do you think how can we solve this problem? How can we explain to the users and to the government authorities who actually has a classical education and not familiar with the digital technologies and blockchain? Um I think I think it'll come in many different phases but there's a ton of projects working on this situation where it defines what smart contract does, what it can do, what its limitations are. There's a lot of projects working on this already. In terms of um what I think organizations and enterprises will

do, they'll have a very big a very tight white list of smart contracts that they audit and before they and they interact with before they go live with doing being what's the word um branching out with more variety of smart contracts as well. So I know some organizations have compiled hundreds of smart contracts that they've identified, audited and then they have a list of what they can do and interact with. And I think that's the next f phase. But I think technology will keep advancing over the next year and year or two that will solve this issue. All right. Thank you very much. All right. Time. Thank you very much everybody.

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