Bitcoin and Ethereum: Competition for Internet Money:
Vitalik Buterin expresses his discomfort with the term “money” due to its broad and subjective connotations. He acknowledges that Bitcoin and Ethereum share the goal of creating a decentralized base layer for applications but differ in their emphasis on specific applications. Bitcoin focuses on the currency aspect, while Ethereum emphasizes smart contract applications. There’s a distinction between viewing the blockchain as supporting the currency (Bitcoin’s approach) or the currency supporting the blockchain (Ethereum’s approach).

Ether and Bitcoin as Assets:
Vitalik highlights the store of value function of crypto assets, where they are held for their monetary or technological properties. He emphasizes the censorship resistance of crypto assets as a valuable property, particularly for a base layer. Ether and Bitcoin compete in the store of value category, but their technological differences and the applications they support create distinct value propositions.

Ethereum’s Social Contract:
Vitalik defines Ethereum’s social contract as a set of informal agreements and expectations among Ethereum stakeholders. He emphasizes the importance of consensus, the role of developers and miners, and the need for compromise and flexibility in maintaining the network.

EIP-1559 and Proof of Work:
Vitalik discusses EIP-1559 as a mechanism to make transaction fees more predictable and reduce miner revenue volatility. He explains that proof of work is a way to secure the network and achieve consensus, although it’s computationally intensive and energy-consuming. Vitalik acknowledges the environmental concerns surrounding proof of work and suggests that Ethereum’s transition to proof of stake will address these issues.

Different Use Cases of Cryptocurrency:
Direct Payment for Goods and Services: Vitalik Buterin personally uses cryptocurrency to pay for things like an annual subscription to the blockchain.

Cryptocurrency as Collateral:
Cryptocurrency can be used as collateral in applications. Smart contracts or other systems hold the assets and release them if the user behaves as expected. DeFi and escrow systems often use this approach.

Utility Tokens Within a Platform:
Cryptocurrency can be used as a utility token within the platform itself. Examples include using Bitcoin or Ether to pay for transaction fees on their respective networks. Staking Ether to earn rewards. Using cryptocurrency for specific functions within certain networks.

Cryptocurrency as a Unit of Account:
While not yet widely used, cryptocurrency has the potential to serve as a unit of account. This would involve pricing goods and services in terms of cryptocurrency.

Liquidity and Global Acceptance:
For cryptocurrency to become a widely accepted medium of exchange or unit of account, it needs to be extremely liquid and reliable. Christian Keroles highlights the importance of global liquidity for cryptocurrency to succeed.

Competition for Global Liquidity:
There is a “fight for liquidity” among assets as audiences choose where to store their money. Bitcoin is competitive in this fight due to its strong network effects and liquidity.

Network Effects in Cryptocurrencies:
Network effects in cryptocurrencies are more forgiving than in some other areas, such as social networks. Cryptocurrencies can start small and gradually increase liquidity and value over time.

Fairness of Initial Coin Distributions:
Fairness of the initial conditions of an asset is important for bootstrapping a community and ensuring widespread adoption. Vitalik considers the Ethereum sale to be relatively fair compared to other token sales, as it was widely advertised and open to anyone with bitcoins. He acknowledges that Bitcoin benefited from a unique period of time when few people knew about it, which led to a more egalitarian distribution of coins through mining.

Advantages and Disadvantages of Pre-mines:
Pre-mines can be a less bad approach for launching a cryptocurrency compared to starting the supply from zero. However, Bitcoin’s early start and the fact that half of its supply was mined before a significant portion of the population had heard of cryptocurrency can be seen as a mark against its fairness.

Vitalik’s Overall Perspective:
Vitalik recognizes the advantages of Bitcoin’s early start and its egalitarian mining distribution. He also acknowledges the importance of fairness in initial coin distributions and the challenges faced by cryptocurrencies launched after Bitcoin. Ultimately, he sees points on both sides of the argument regarding Bitcoin’s fairness and advantages.

Bitcoin’s Immaculate Conception and Neutrality:
The concept of Bitcoin’s “immaculate conception” refers to its creation without any pre-existing governance or control. The narrative surrounding Bitcoin’s neutrality is crucial in establishing its potential as a medium of exchange and store of value. The perceived neutrality of Bitcoin allows for broader acceptance and recognition as a shelling point.

Narrative and Perception:
Cryptocurrencies are dependent on the narratives and perceptions held by individuals and communities. Different cultures and values can influence the perceived value and significance of cryptocurrencies. The importance of narratives and stories in shaping the value of cryptocurrencies is acknowledged.

Proof of Work’s Egalitarian Distribution:
Proof of work was initially a fair and egalitarian method for distributing coins during the early years of cryptocurrencies (2009-2013). The accessibility of proof of work allowed anyone with a computer to participate and acquire coins. However, the limited awareness of cryptocurrencies during this period limited the egalitarian aspect of distribution.

Background on the Shift from GPU to ASIC Mining and Its Implications for Fairness and Distribution
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ASIC Mining and Distribution:
ASICs have led to a decline in the fairness of mining due to their high costs and potential for manipulation by manufacturers. Ethereum was designed as an ASIC-resistant proof-of-work system to address this issue and promote a more balanced distribution of coins.

Proof-of-Stake and Distribution:
Proof-of-stake does not distribute coins but reduces issuance significantly compared to proof-of-work. The issuance in Ethereum 2.0 is estimated to be between 100,000 and 1 million ETH per year, compared to 4.7 million ETH today.

Long-Term Issuance and Transaction Fees:
In the long run, the issuance of new coins will become less relevant as transaction fees become the primary source of income for miners. Both Bitcoin and Ethereum are moving towards scenarios where the majority of miner income will come from transaction fees rather than newly issued assets.

Egalitarian Distribution Challenges:
Vitalik Buterin expresses his desire for a more egalitarian distribution of coins but acknowledges the difficulty in designing mechanisms that are fair, decentralized, and anonymous.

EIP-1559 and Ether’s Economics:
EIP-1559 reforms the fee market in Ethereum by introducing a base fee that is burned, reducing the volatility of transaction fees and making the system more predictable.

Base Fee Mechanism:
EIP-1559 introduces a new transaction fee structure, where transactions include a base fee that is burned instead of going to miners. The base fee adjusts automatically to target an average block size of 10 million gas.

Benefits of EIP-1559:
Volatility in block size is preferred over volatility in transaction fees. EIP-1559 addresses market failures in transaction fee markets, where fees are often higher than necessary. It eliminates the situation where users who are unwilling to pay high fees end up waiting indefinitely for their transactions to be included, which does not benefit the network.

Transaction Fee Burning:
A significant portion of transaction fees will be burned, reducing the supply of ETH. If demand for Ethereum transactions remains high, the burned transaction fees could exceed the ETH issued through proof of stake, potentially leading to a decrease in ETH supply over time.

Potential Negative Externalities:
Some argue that a deflationary or monetary destructive mechanism can be harmful to the ecosystem. Vitalik Buterin counters that if Austrians believe that 0% annual issuance is better than 1% annual issuance, they should also expect negative 1% issuance to be better than 0% issuance.

Fixed Supply vs. Changing Supply:
Some argue that a fixed supply is better for measuring value and allocating capital effectively. Vitalik Buterin argues that the difference between 0% issuance, 0.2% issuance, and minus 0.2% issuance is relatively small and unlikely to have a significant impact on the economy.

EF Staking in Ethereum 2.0:
Internal discussions within the Ethereum Foundation (EF) have taken place regarding the possibility of staking ETH in Ethereum 2.0. There are differing opinions within the EF on this matter, and no final decision has been reached.

Ethereum Foundation’s Staking:
Vitalik Buterin suggests that the Ethereum Foundation (EF) should stake about the same percentage of its ETH as the entire Ethereum ecosystem stakes. This would help minimize conflict of interest and ensure neutrality in manipulating proof-of-stake parameters. Some argue that the EF should stake more to signal confidence in Ethereum 2.0, while others suggest it should stay out entirely.

Trust in the Ethereum Foundation:
The Ethereum community places a significant amount of trust in the EF to act in their best interests. Vitalik clarifies that there are two aspects of trust: honesty in protocol decisions and refraining from actions that could harm the network. The EF’s current ETH holdings are relatively small compared to the total stake required to cause significant network damage.

Challenges in Decentralized System Development:
Vitalik acknowledges the challenge of maintaining decentralization during the rapid development of Ethereum 2.0. The EF strives to have an open research and development process, inviting feedback and making specifications transparent. However, there are limits to how much can be done before the protocol is fully built and deployed.

Exchanges and Staking:
Vitalik views exchanges staking as a larger threat than the EF due to the vast amount of ETH held on exchanges. Exchanges have an incentive to offer staking services to customers, creating a potential conflict of interest. The long-term relationship between proof of stake and centralized exchanges remains an unsolved problem.

Preventing Exchange Collusion and 51% Attacks:
Vitalik Buterin discusses the concern of exchanges colluding to launch a 51% attack on the Ethereum network. Buterin explains that having a sufficient amount of Ether staked outside exchanges can mitigate this risk. Even in the event of a successful attack, forking and slashing mechanisms can deter exchanges from attempting collusion.

Nuclear Option and Community Response:
Buterin emphasizes the ultimate recourse of the community in case of a 51% attack, which involves forking the network and excluding attackers from staking rewards. The potential for severe financial losses acts as a deterrent against collusion and malicious behavior.

Encouraging Non-Custodial Models:
Buterin suggests shifting the ecosystem towards non-custodial models to reduce reliance on exchanges holding large amounts of Ether. Platforms like Loopring and StarkEx are examples of non-custodial models that can enhance security and decentralization.

Centralized Exchanges and Government Influence:
Christian Keroles raises concerns about centralized exchanges being coerced by governments to participate in collusion. Buterin acknowledges this possibility and highlights the potential consequences for exchanges and their coins in such a scenario.

Slashing Mechanism and Its Implications:
Buterin emphasizes the mathematical certainty that slashing mechanisms impose a limit on the number of attacks based on people’s willingness to risk losing coins. Slashing mechanisms are designed to burn coins of malicious actors, providing a strong incentive against attacks.

Objectivity of Slashing and Social Scalability:
Buterin acknowledges the challenge of making slashing objective, as certain attacks may be more difficult to prove than others. He expresses concern about the potential impact of slashing on the social scalability of Ethereum, as it could lead to contentious debates and polarization within the community.

Detecting 51% Attacks:
Vitalik Buterin believes detecting 51% attacks is relatively straightforward due to the design of Casper FFG. If two-thirds of participants finalize one chain and then reverse their decision to finalize a conflicting chain, the intersection of the one-third involved in both actions is identifiable. Proof of mathematical conflict is inherent in the protocol, allowing for automatic money burning for those involved in conflicting messages.

Mitigating Offline Attacks:
Ethereum addresses offline attacks through inactivity leak mechanisms.

Challenges in Addressing Censorship:
Censorship is difficult to mathematically prove to an offline observer. Censorship and the victim going offline appear indistinguishable.

Censorship Detection Gadgets:
Vitalik Buterin has proposed censorship detection gadgets that allow online observers to identify the responsible party. These gadgets can be incorporated into consensus algorithms to achieve up to 99% fault tolerance under specific conditions.

Limitations of High Fault Tolerance:
High fault tolerance algorithms require continuous online presence with low latency, which is unrealistic in practice. They can serve as theoretical backup processes to identify fault during attacks.

Social Consensus and Hard Forks:
David Hoffman acknowledges the commitment to hard forking in improvements and the upcoming transition to proof of stake. Ethereum’s evolution beyond proof of stake will involve further hard forks and advancements.

Ethereum’s Long-Term Hard Fork Relationship:
Vitalik Buterin believes that Ethereum’s social contracts should gradually move towards being more like Bitcoin’s. Currently, radical changes are necessary to introduce essential upgrades like Proof of Stake and sharding. Over time, as these foundational changes are implemented, subsequent improvements will be marginal and less disruptive.

ETH2 and Beyond:
After ETH2, changes will primarily focus on technical improvements within the same framework, rather than complete redesigns. Vitalik predicts that Ethereum 2.x might be the end of major protocol upgrades, except for potential cryptographic changes in the distant future. Layer two protocols, like rollups, will enable experimentation with various computational models, reducing the need for disruptive changes to the base layer.

Ossification and Community Acceptance:
Vitalik believes ossification is more socially scalable as more stakeholders join the Ethereum ecosystem. He acknowledges the concern that coordination may fail before ossification occurs, especially with the influx of new participants. However, discontinuing the ETH 2.0 switch would likely be more controversial than proceeding with it.

Internal Divides Within the Ethereum Community:
There is an internal divide between those who favor ossification and those who embrace off-chain governance. Clashes between these camps have occurred, such as with the PROC POW proposal and certain block reward funding and funds recovery EIPs. Vitalik anticipates these clashes to continue and potentially intensify with the involvement of new actors in the Ethereum space.

Uncertainty Surrounding Ethereum’s Future:
Vitalik Buterin acknowledges the unpredictability of Ethereum’s long-term trajectory and the possibility of a decline in its development activity, potentially leading to ossification. He expresses hope that the core development community remains cohesive and the necessary technical developments are completed before any potential decline occurs. Buterin suggests that a shift to Layer 2 protocols and rollups would be acceptable if the core developments are achieved.

Minimum Viable Issuance as a Monetary Policy:
The concept of minimum viable issuance has gained attention in the Ethereum community as a potential monetary policy. In the short term, minimum viable issuance should be viewed as a social contract, considering the possibility of an economic hard fork to the proof-of-stake protocol. Long-term, minimum viable issuance should serve as an explanation for the values set for issuance and other parameters. Buterin proposes a theoretical thought experiment involving a protocol with decreasing issuance, but with an increase in issuance in the event of a 51% attack. This mechanism would guarantee a gradual decline in issuance while incentivizing security against attacks.

Determining Minimum Viable Issuance:
Buterin highlights the difficulty in objectively determining minimum viable issuance. He suggests that it should be based on empirical evidence, such as the amount of ETH staked at a reasonable cost. Parameters set too low could be risky, while parameters set too high could be overly inflationary.

Implementing Minimum Viable Issuance in Ethereum:
Buterin acknowledges the challenge of implementing minimum viable issuance in Ethereum without frequent hard forks to adjust monetary policy. He proposes a long-term approach where the parameters are set based on empirical data and theoretical considerations, rather than as a social contract.

Vitalik’s Proposal for Issuance Stability:
Vitalik Buterin suggested a potential protocol rule to ensure issuance remains at a minimally viable level. If the blockchain experiences a 51% attack, issuance would increase, and in the event of a 200% attack, issuance would decrease. This mechanism aims to enshrine minimal viable issuance into the protocol rules.

Challenges in Defining Minimal Viable Issuance (MVI):
Determining MVI is challenging due to the uncertainty surrounding the conditions under which 51% attacks may occur. The type of 51% attack (complete network disruption or low-grade influence) is also a factor to consider. Setting an objective cap on issuance may provide stability but is more art than science.

The Social Contract of a Blockchain:
The Bitcoin community emphasizes that Bitcoin is run by code, minimizing human involvement. However, some argue that a social contract is inherent in blockchain networks as individuals choose to run nodes. This social contract involves the relationship between the physical network (nodes) and the people operating them.

Vitalik’s Perspective on the Social Contract:
Vitalik believes that the social contract is an important aspect of blockchain networks. He acknowledges that human involvement is inevitable and that it can influence the decision-making process. Vitalik emphasizes the need to balance the social contract with the technical aspects of the network.

Social Contracts in Blockchains:
Social contracts are crucial in blockchain systems, extending beyond technical parameters. Bitcoin’s social contract acknowledges the importance of resolving technical bugs through hard forks. Different blockchains can have varying social contracts, valuing aspects like immutability, functionality, security, and performance.

Factors Influencing Blockchain Evolution:
Technical factors, such as implementation variations, version discrepancies, and funding structures, impact blockchain development. Social factors, including the number of full and light node users, influence protocol outcomes.

Values Instantiated in Ethereum:
Openness and participation: Ethereum values accessibility and inclusivity for all participants. Neutrality: The protocol avoids favoring specific actors, ensuring equal opportunities. Trust minimization: Ethereum prioritizes reducing reliance on intermediaries and promoting transparency. Censorship resistance: Ethereum aims to guarantee network reliability and resilience against censorship attempts. Openness to experimentation: Ethereum encourages diverse applications and innovations built on its platform.

Blockchain Systems as Digital Nations:
Vitalik Buterin views cryptocurrencies and blockchains as digital nations with unique cultures, values, and governance mechanisms. These digital nations possess distinct identities, economies, and social dynamics, resembling nation-states in the physical world. The concept of digital nations highlights the growing significance and autonomy of blockchain ecosystems.

Blockchains and blockchain communities are a unique blend of open-source software, religions, organizations, and nations

Blockchain Communities:
Blockchains and their communities possess a distinctive amalgamation of open-source software, religious, organizational, and nation-like characteristics. They have unique currencies, governance systems, and security measures, resembling nation-states.

Parallelisms with Nations:
Cryptocurrencies exhibit parallels with nations, including the presence of maximalism (akin to nationalism), logos (analogous to flags), and community symbols displayed on social media platforms.

Community and Culture:
Cryptocurrencies provide essential functions and services while fostering a community and culture centered around the systems that deliver these functions.

Window into Human Nature:
Observing cryptocurrency communities offers valuable insights into human nature and the underlying reasons behind certain global events.

Austrian Monetary Perspective:
The Sovereign Individual posits that governments’ control over currency is the foundation of their power. Vitalik Buterin disagrees with this view.

Physical World Factors:
Buterin emphasizes the importance of physical security, healthcare, and infrastructure, which require government involvement.

Cyber vs. Meatspace:
Cyberspace offers increasing privacy, while meatspace sees growing surveillance. Buterin advocates for zero-knowledge proofs and privacy-enhancing technologies to counterbalance this trend.

Government Competition:
Buterin believes that inter-governmental competition can lead to more freedom. Decentralization of political power can also contribute to this goal.

Public Goods and Blockchain’s Role:
Global public goods like scientific research and climate management pose challenges. Public blockchains can serve as a glue between countries, facilitating cooperation.

Bitcoin and Ethereum’s Relationship:
Buterin’s perspective on governments and blockchains informs his view of Bitcoin and Ethereum. He sees these systems as potentially complementary, rather than competitive.

Vitalik’s View on Bitcoin and Ethereum:
Vitalik Buterin sees Bitcoin and Ethereum as focusing on different areas. Bitcoin is primarily seen as an asset and store of value, while Ethereum values the network more. Vitalik believes that both can coexist in the long term, with multiple large assets surviving.

Survival of Various Crypto Assets:
Vitalik is surprised by the staying power of various crypto assets, including XRP, Bitcoin Cash, BSV, and EOS. He notes that even assets with questionable value have maintained their value over time.

Bitcoin Halving:
Vitalik expresses his excitement for the upcoming Bitcoin halving, likening it to a birthday. He wishes it could have occurred on International Star Wars Day (May 4th), but it will miss it by about a week.

Where to Find Vitalik Buterin:
Vitalik provides his various social media and online platforms for people to follow him. He mentions his Twitter, website, Reddit, and e-research account, each catering to different types of content.