blockchain and distributed ledger technologies enable people to interact in a peer-to-peer way without going through a trusted intermediary this innovation makes it possible for us as a society to organize collective governance in exciting new ways but it also poses challenges to our existing governance frameworks I had a chance to sit down today with Vitalik few Turin the inventor of aetherium to delve into this topic when you first started aetherium what what was the philosophy with which you started it so you set out to build something you want to do something that was turing-complete because you wanted to be able to build this sort of general purpose blockchain yeah instead of something was limited just a certain set of transactions like Bitcoin yes so for people who don't know what web 3 is what three is this a vision that you know etherium plus a combination of several other technologies can bring about a more going to decentralize the internet that puts basically more control in the hands of the user and this has a suite of technologies that includes aetherium as a kind of decentralized database whisperer as kind of decentralized messaging swarm as decentralized content hosting possibly other technologies as well and these things would be and have developed in some ways together but designs to be nicely complementary with each other and you could see a lot of applications using some combination of both what about the infrastructure environment hardware requirements and things um well one of the things I actually love about blog chains is that they can survive without needing much special hardware so like I personally just actually really love the idea that basically the thing could just run on a few thousand guys with our rent or laptops that's one of the things that really excited me about Bitcoin early on it doesn't require all of this like billion dollars of capital started up by people who are already here before and that would be very basically impossible for a new group to match it's just you know like a few thousand people on their laptops is all that you need with respect to hardware what about people who are not gonna have laptops but smart devices look one of the things that we got in deeply cared about from the start especially for people with laptops has a very strong white coin technology so this basically means that no you can use this technology to have a client that runs on a phone which has almost the same levels of security and trust amongst us as a regular client except it so it has to be more efficient and you can do that in in Sudan where you have people with probably Nazis and not Seussian now but probably Sudan in three to five years yes like people do underestimate I think just like the sheer level of mobile penetration and look how quickly it's growing I think once all of these places have internet access and once they get up to like basically once the quality of 20 or $20 phones increases by another couple of you a couple of years worth of time it'll definitely be at that point so you think you generally think that etherium is going to be a worldwide penetrating technology and that we're not gonna be limited by a bandwidth and hardware that's definitely what we hope I mean like if we were if lock chains were only usable by the rich then the whole space would definitely be much less interesting so how are you thinking about the incentive structures that you're building in particularly with the upcoming transfer transition to Kasparov stake there's a lot of skepticism as I'm sure you know that there's just gonna be this massive centralization around people who already have huge stakes yes being able to control the network obviously this is not something that surprises you in the end that you're planning for it's definitely kind of another sort of devil you know arguments because like what's proof of work you know you notice that 70 70 percent of mining is done out of China 70 percent of mining is done using mining hardware created by one company and run by basically like five or ten guys and like the thing with hardware centralization is that it's the sort of thing that is in some ways much harder than just watch right so like in Casper for example there's a mechanic where if even if like a group of people that have more than a third of the deposits colored and and they do an attack then basically the mechanism penalizes them and once the attack is detected it takes away their money right and so they don't have the money to do the second attack anymore but with the hardware you can't really do that like you can stick look there's no way to kind of burn a piece of hardware from inside a protocol from my kind of points of view of someone who is like really deep we thought about these protocols I think that Brewers day kind of is better on a bunch of dimensions and like the kind of meta argument that I that I used to explain this as basically that because proof of stake has to do with virtual assets that are defined inside the system it means that you have more what more freedom in basically determining rules that are optimal and so we can design systems that you know like in general have much better incentives like better structured rewards and larger penalties from his behavior and so forth whereas a proof-of-work you're kind of stuck with the laws of physics in some ways well there's also this transition plan in place right so you're combining proof-of-work and previous exactly right for a certain period of time yeah and you're doing you're doing analytics on that right happening as it evolves yeah obviously you can you can pull back if you need to but that's a pretty technical topic so for CG viewers who don't really know that much about the details of how let's talk about a different internal governance aspect which is how decisions about changes to the protocol are made currently and in Bitcoin has done through through mining essentially right because the miners decide which version to accept there are different mechanisms and different chains we saw you know tezo's launched earlier this year or ICO anyway with with the idea of building a different kind of a governance system decision-making system about protocol changes there are several other protocols working on different models and some people say hey everybody who uses the system should get to have a democratic say in protocol changes but reality is most people are not developers they know the details enough to be able to really have an informed opinion about stuff and it's just like in in our societies where we have rational ignorance about a lot of things and people don't want to invest their time and trying to figure out what they want to vote on and it's kind of an internal governance scheme how do you think about this problem who should be able to decide governance ultimately is like basically the set of kind of institutions and norms and agreements and they honor standards and what economists call showing points around basically under what context should people use these underlying tools and in what ways in you know it's the physical world you know you would have like Parliament's and constitutions and laws and so forth and you would have also on top of that often very informal norms about a little bit like the ways in which different things should be used yeah exactly and in the crypto world I think you know you have some of the same thing right so you have at the very bottom level you know the people's ability to write software and miners ability to mine and particular chains and at the higher levels you would have developers discussing between themselves and developers implementing software developers like you coming up with mechanisms between themselves to agree on basically what the software changes should make you know what blocks they should activate that under what conditions they should be agreed on and you would have users ultimately always have the ability to basically just rebel and refuse to accept a particular update and then on top of that you will also have norms and expectations about what kinds of updates should happen in general so for example in Bitcoin people really cherish this one in 1 million limit you know there's also the ideas of decentralization there's the idea that this thing is supposed to be a currency like you're not supposed to arbitrarily take money away from people so basically if I user find something distasteful and there is a norm against that then the user knows that a lot of other people find distasteful as well and they also know that because there exists this kind of you know metal level social objects called norm they're you know like other users will also be more interested in coordinating around basically not accepting the update and so users are gonna rebel not install a software and you have things like aetherium classic sure and there are a lot of there are a lot of really well-known and well-documented sort of human rationality yes I mean all kinds of biases if you just go to the wiki page for a cognitive bias yes 60 now including things like we've changed the way that we remember information because the Google effect then it we tend not to even bother to remember things that we can easily look up on Google nowadays and so yeah the way that we interact with technology is actually changing our human thinking biases as well yes how do you plan for those and design those in this is one of the reasons why the economics of crypto economics is so interesting because like some people say that you know like oh cripton we like group 2 economics it's not going to work because people are not fully rational where people are not purely motivated by economic factors but what people don't see I think is that even though the economic incentives are not the only thing that motivates people they are a very large thing that motivates people yeah but there's a difference between motivating people with economic constraints and being able to understand how they will behave in reaction that incentive because sometimes people could take completely irrational strategy yes right but practically speaking with ideas that it's easier to predict the idea that people are more likely to take things that will make them more money than it is to predict that any specific bias is going to be very stable and robust across decade across decades and across different cultures and across like being it would be like the actor is being people versus organizations versus robots so that's sort of probably one factor and another factor that people miss is that it's not just about incentivizing people it's also about this idea that basically like if you try to break caspere then you lose a lot of money right and so even if you're an irrational actor if you have some particular amount of money well you can only do so much there's a mathematical proof of an upper bound on like the ratio between basically how much harm you can cause of how much money you can burn in order to achieve it and so like using basic we economic size just a way of measuring actors in terms of the resources that they control is also just in it and if another aspect of this there are a couple of things that that have been sort of major topics of conversation around you in the last year last month or so couple of months one of them is about you know how much involvement should founders and core devs have in going around and evangelizing blockchain versus actually working on the protocol and doing things like meeting with world leaders that you caught a lot of flack for for your trip to Russia why do you do those things how do you make decisions about how to balance your time yeah you know I think it's definitely first of all we're def to reach out and talk to people because first of all like it helps people understands that you know this is something that's concrete that's got actual people behind it and that's good it's got legs it's got potential you know we're we're here to help humanity and I think you know like that just getting the understanding of that and just what the technology is and how it works is valuable and also what people have understood that when you go to talk to others yeah I mean I think like they have been definitely quite friendly in general over the last few years and it's also important I think for us to understand that right and basically to understand you know what are the challenges that kind of you know basically mainstream institutions currently face and what role can the technology have in addressing them yeah and it's you know like some of the conversations I've had in probably more this is more with Bankston we've got then with governments but no oh it's a some extent with everyone around it like what are the privacy challenges why are they interested in consortium chains you know what are their what is their thinking about scalability I think that's definitely I call fairly important and like it some of it definitely does end up informing things that we focus on one of the things from your perspective in interfacing with the law with governments with regulators that are hindrances to what you're trying to achieve I would say the main kind of regulatory thing that's been a hindrance in practice just is like difficulty of cryptocurrency exchange aside from cryptocurrencies so far there hasn't really been much hindrance to our watching technology as a whole but like at the same time public blog chains it's been despite being usable for a large number of things argument cryptocurrencies still fundamentally relying in a cryptocurrency for transaction fees economic incentivization and a lot of other things it would be so much better if people could buy like $100 of cryptocurrency instead of zero and always a cryptocurrency but and yet in many places it still won't like going from zero to a hundred is much harder than going from 100 to 5,000 right there's big differences between how politically easy it is to you know go after a technology where 90% of it is being used by terrorists versus technology where you know going after something that's like the Internet where you know I guess terrorists use it but also the people who catch terrorists use it as well and your have you and you're sort of looking at different parts the ecosystem around the world are there certain areas that you parts of the world that seem particularly friendly or particularly hostile to etherium as an idea or as a project or as a decentralized model of organizing society basically the thing that you need the thing like a lot of people and probably even a lot of libertarians even more than average underappreciate is that very few people hate freedom like basically this annual very few people hate Pride to see very few people hate decentralization but there are a lot of people that finds those find all these things slightly valuable but not too valuable and you know like they just come up with a thousand exceptions for a thousand different cases why Oh in this particular case I wants to have more control yeah there definitely are places that have more that have more of that than other places so you know like on the one hand you know China has had booked the ICO ban and the ban on most crypto trading but on the other hand you know look there's a lot of other places that you know like Switzerland you know like Singapore that have shown themselves to be very friendly at the end of the day people nobody hates freedom and nobody hates your privacy exactly but a lot of people just like uncertainty yes totally and and government is one form of certainty yes sort of the devil you know is better than the devil you don't definitely especially with a centralized mechanism like that even just to handle visas throughput let alone every imaginable smart contract that's not gonna work if everyone's running a copy of every program on their computer yeah it's always so you know if you look at like what just the raw numbers of watch ins today Bitcoin is currently processing some a bit less than three transactions a second and if it goes close to four then it's already at peak capacity in theory I'm right you know over the last few days that's been doing about five a second and if it goes above six then it's also at peak capacity so on the other hand you know uber on average twelve rides a second PayPal several hundred Visa several thousand major stock exchanges tens of thousands and if you want to go up to IOT then you're talking hundreds of thousands and if you're you want to go up to non-financial applications so like for example there is a platform called Leroy which is basically just Twitter on the blockchain then you know you're talking also about hundreds of thousands possibly millions so you know there is a kind of gap from here to there and I think right now there already is really a lot of institutional hype in the space and just public hype so when you have you know a vladimir putin having you know knowing what block chains in etherium are and paris hilton going out promoting i CEOs on twitter you know that's that's peak hype but the reason I think a large part of the reason why a lot of this hasn't materialized into action yet is precisely because of some of these technical obstacles that make blockchains you know work okay for some nice use cases but not really work work well from each game use now our team is working very hard on various kinds of scalability solutions so you hear about buzzwords like plasma sharding state channels right and you know all there's you know various newer ones like per oon so you know if you you know you all of these are various different ideas that actually we do try to kind of break through this fundamental barrier right but try to either create block chains that still maintain a large amount of security without requiring everyone to literally process everything right so if you think about it I like one extreme is one guy processes everything which is today's were all the other extreme is everyone processes everything well what if you can get like square root of everyone so like maybe 500 people processing each transaction you still get enough decentralization and security for everything you need but suddenly it's you know with within it sufficient enough that you know it actually works for stuff in the real world and the the other kinds of strategies are strategies that try to use the blockchain you know kind of more intelligently right so it's basically you look one of the analogy is that like Joseph boon from like a plasma uses a lot is the idea of the blockchain as a court system right so block chains are great at securely resolving disputes and you know currently the wave well the naive watching applications work is they just put every single transaction on the blockchain but what you could do instead is you could have systems where people send messages that I call kind of tickets so digitally signed messages that are off cane by default but we are the blockchain only gets used in those specific cases where there's a disagreement so if I have a hundred digital and one hundred either and I send the year one hundred easier then that might not ever go off chain but if I send you the hundred ether and then you claim that I never sent you the money the or I claim that I never sang the money then that's a transaction that I could okay we have a dispute and I could actually push it down onto the blockchain and so we still have in our guarantee of security now all of these approaches have their own trade-offs and there's this huge amount of incremental technical work involved in figuring out what the right trade-offs are but you know this starts looking like a direction that's much more promising and how far along are we how long until you think that maybe we can scale to as I said hundreds of concurrent users how many until we can replace visa how many until we can replace AWS I mean first things like visa I think definitely I'll say a couple of years so maybe one year when we start seeing like prototypes that have you know like a low security level but are still you know a secure enough for like a major organizations to start just doing proof of concepts on and a couple more years for all these solutions to really hit the mainstream for I mean 8w license a trickier one because I think there are reasons why blockchains Renault no matter how good they are never going to completely replace centralized cloud computing and it's probably even more one of the big ones well there's probably two big ones in my opinion one big one is that there are computations that are intensive and that are hearts of paralyzed so decentralized clouds are really good at paralyzation because you know it's like uber for your laptop you know you've got you've got millions of computers from you know millions of countries millions of providers all ranging all from individual laptops to you know you can you can think of you know even cloud computing company is basically turning into like specialized mining farms inside of the system but if you have computations that require like a really large amount of serial computation then that's harder to decentralize in the second really tough one is privacy right look if you have computations on private data and then there's basically two approaches one of them is to make sure the computations are only done on hardware that you trust and the second one is the USB NC cryptography so you know you might have heard of buzzwords like homomorphic encryption indistinguishability obfuscation to do the computations but or but then if you do that then those tends to carry very serious some computational efficiency trade-offs so basically for private or cereal applications are going to do them locally yeah like in general I think like there's obviously there's always going to be this large set of applications where decentralized approaches like actually don't work that well and that's fine