Vitalik’s Reflections on 2022:
* 2022 was a year marked by massive failures in the crypto space, but also by significant technological advancements and adoption.
* Despite the setbacks, Vitalik emphasized the positive impacts that blockchain technology has already had and can continue to have in the world.

Optimism for 2023:
* Vitalik expressed optimism for 2023, highlighting promising developments in the Ethereum application ecosystem.
* He believes that Ethereum can solve real-world problems and contribute to a more decentralized and inclusive future.

Challenges and Villains:
* Vitalik acknowledged that the crypto industry has faced a series of increasingly formidable challenges and villains in each cycle.
* He emphasized the need to address these challenges collectively and continue pushing forward despite setbacks.

Shifting Focus from Crypto to Ethereum:
* Vitalik intends to focus on promoting “Ethereum” rather than “crypto” in 2023.
* This shift reflects his belief that Ethereum has the potential to revolutionize industries and become a transformative technology.

Simplicity vs. Complexity in DeFi:
* Vitalik advocated for simple and user-friendly DeFi applications, as opposed to overly complex and opaque ones.
* He believes that simplicity is key to driving mass adoption and ensuring the long-term success of DeFi.

Ethereum’s Role in Identity and Scalability:
* Vitalik sees Ethereum as a potential solution to the internet’s identity problem, enabling decentralized and secure identity verification.
* He also believes that Ethereum can scale to support a wide range of applications, including those requiring high transaction volumes.

The Most Scalable Use Case for Ethereum:
* Vitalik revealed that he believes the most scalable use case for Ethereum is “rollups,” which are a layer-2 scaling solution that can significantly increase the network’s transaction capacity.
* He emphasized the potential of rollups to revolutionize the industry and enable the development of powerful new applications.

The Merge:
The Ethereum merge was a significant achievement, reducing its energy consumption by 99.9%. It improved transaction inclusion time, leading to faster confirmation times. The merge enhanced the base Ethereum chain’s usability, offering a competitive experience with credit card systems.

ZK-EVMs:
ZK-EVMs have progressed from being a concept to promising mainnet launches in 2023. They are considered the future of scaling Ethereum, providing high efficiency and security.

Sign-in with Ethereum:
Sign-in with Ethereum has gained traction, allowing users to log into alternative social media platforms like Farcaster and Lens.

Cryptocurrency’s Impact:
Cryptocurrency payments were crucial during the Ukraine invasion, providing a lifeline for civilians and the country’s defense. Adoption in regions like Latin America continues to grow, with increased sophistication and understanding of DeFi and self-custody. Cryptocurrency is used for philanthropy, with organizations like Crypto Relief India and Bolvi funding initiatives for public health and experimental projects.

Cryptocurrency’s Impact on Philanthropy:
Cryptocurrency has emerged as a significant tool for international philanthropic efforts, facilitating large-scale donations and cross-border transactions.

2022: A Year of Failures and Technological Advancements:
While 2022 was marked by notable failures in the crypto space, it also witnessed remarkable technological progress and increased adoption.

Comparison to Previous Bear Markets:
Comparing 2022 to previous bear market periods reveals that these downturns often coincide with significant technological advancements.

Post-Peak Periods:
Bear markets provide opportunities for focused development, allowing teams to refine existing technologies and introduce new innovations.

Technological Milestones During Bear Markets:
Notable examples include the launch of Ethereum in 2015, the creation of Uniswap in 2018, and the implementation of the merge and ZKE VMs in 2022.

Separation of Good and Bad Projects:
Bear markets facilitate the separation of valuable projects from unsustainable ventures, leading to a healthier ecosystem.

Drawing Parallels to Previous Exchange Failures:
Vitalik Buterin compares the FTX collapse to the 2014 Mount Gox incident, highlighting the importance of learning from past mistakes.

Mark Rappelos’ Post-Blowup Conduct:
Vitalik Buterin commends Mark Rappelos for his post-blowup actions, emphasizing the importance of accountability and diligence in addressing financial misconduct.

Current Challenges:
Crypto is facing a series of crises and contagion events, reminiscent of the Mt. Gox incident in 2014. These events include the collapse of Luna and Terra, the FTX implosion, and BlockFi’s recent bankruptcy. Unlike 2014, the interconnectedness and sophistication of the crypto space lead to increased fragility and contagion.

High-Variance Strategies:
Crypto’s initial adoption strategy focused on high excitement and a confrontational approach, which was effective in attracting early adopters. However, this strategy is counterproductive for mainstream adoption, as it alienates potential users who see the over-the-top rhetoric as unrealistic.

Getting from 10% to 70% Adoption:
Crypto is now at a stage where it needs to transition from 10% to 70% adoption, which requires different strategies. The current “siege mentality” and extreme rhetoric are no longer suitable for this stage of growth.

Work to be Done:
Vitalik emphasizes the need for substantial work to improve the status quo of crypto. The current situation, while exciting and fun for some, is unsustainable for long-term success.

Historical Analogies:
Vitalik draws parallels between crypto and three historical movements: Esperanto, Linux, and the Internet. Esperanto, an attempt at a universal language, failed to gain widespread adoption due to its niche appeal and European-specific features. Linux, an open-source operating system, has had mixed success, dominating in server environments but struggling on the desktop.

Conclusion:
Vitalik acknowledges the optimism surrounding crypto but stresses the need for a critical assessment and course correction. Crypto must evolve its strategies to achieve mainstream adoption and avoid getting stuck in a niche market.

Comparing Cryptocurrency to Esperanto, Linux, and the Internet:
Vitalik Buterin compares the potential outcomes of cryptocurrency to three examples: Esperanto, Linux, and the internet. Esperanto is a constructed language that was intended to be universal, but never gained widespread adoption. Linux is an open-source operating system that has become dominant in certain domains, such as servers and embedded systems, but has not achieved mainstream popularity on the desktop. The internet has become ubiquitous, transforming communication and information access worldwide.

Cryptocurrency’s Current Status and Potential Future:
Buterin believes that cryptocurrency has moved beyond being a niche curiosity like Esperanto. The question now is whether it will follow the path of Linux, becoming important in specific domains but not achieving universal adoption, or whether it will become as pervasive as the internet.

Factors Influencing Cryptocurrency’s Future:
Buterin emphasizes the role of human agency and effort in shaping the outcome. He believes that if those working in the Ethereum space actively strive to build meaningful projects and drown out the noise of sensationalism, they can influence the direction and impact of cryptocurrency.

Potential Scenarios for Cryptocurrency’s Future:
Cryptocurrency could become a specialized tool, like Linux, used in certain industries or for specific purposes. It could serve as a store of value, held by people but not used frequently in daily transactions. It could become the foundation for the next wave of technological infrastructure, akin to the internet, transforming various aspects of society.

Buterin’s Optimistic Outlook and Call to Action:
Buterin expresses optimism about cryptocurrency’s potential. He urges those involved in the Ethereum community to recognize their agency and work actively to shape the future of cryptocurrency, advocating for meaningful projects and responsible development.

Saying “Ethereum Ecosystem” Instead of “Crypto Space”:
Vitalik Buterin suggests using “Ethereum ecosystem” instead of “crypto space” to emphasize Ethereum’s focus and avoid associating with problematic projects.

Gatekeeping in Permissionless Commons:
In a permissionless commons like the crypto space, gatekeeping is essential to prevent tragedies of the commons. Gatekeeping involves defining boundaries and enforcing filtering mechanisms to maintain a cohesive community.

Gatekeeping in Ethereum:
Focusing on the Ethereum ecosystem does not imply Ethereum maximalism. It allows for recognizing and valuing positive aspects of other ecosystems while distancing Ethereum from problematic projects.

Analogous to American Politicians:
Vitalik compares focusing on Ethereum to an American politician discussing domestic policies. Just as discussing American policies doesn’t make one an “America maximalist,” focusing on Ethereum doesn’t imply exclusivity.

Ethereum’s Differentiating Values:
Vitalik aims to highlight Ethereum’s unique values and contributions without endorsing questionable projects in the broader crypto space. He respects ecosystems like Cosmos for their distinct design approaches and contributions to the blockchain landscape.

Vitalik Buterin’s Appreciation for Crypto Projects:
Vitalik Buterin acknowledges that non-Ethereum projects can also contribute to the overall benefit of the crypto space. He respects the technical vision of certain projects, such as Zcash, and their avoidance of pump-and-dump schemes and excessive self-promotion. Vitalik values the self-custody and decentralization ethos of Bitcoin, recognizing the importance of learning from this approach.

Striving for a Balanced Approach to Permissionlessness:
Vitalik is working towards defining a formula that allows Ethereum to engage with other projects without extending its alliance to everyone by default. He recognizes the trade-off between being permissionless in the positive sense (open to innovation and participation) and being permissive to the point of allowing anyone to borrow social credibility.

Assessing the Worst Events of 2022:
Ryan Sean Adams suggests that the rise of NFTs, particularly celebrity-endorsed projects like Bored Apes, could be seen as a negative development in the Ethereum ecosystem. Dave Halfman disagrees, stating that if Bored Apes are the worst thing to happen in Ethereum in 2022, then the ecosystem is doing well. The discussion shifts to the Cosmos ecosystem, and the Terra collapse is mentioned as a significant negative event, although it was largely contained within the AppChain model.

Balancing Permissionlessness and Social Credibility:
Vitalik acknowledges the difficulty in finding the right balance between permissionlessness and maintaining social credibility within the crypto space. He believes there is a trade-off between the two, and finding the right balance is an ongoing challenge.

Lessons Learned in 2022:
The crypto space is most honorable when it takes its core principles (decentralization, openness, self-custody, and transparency) seriously. FTX and Terra violated these core principles, leading to their failures. Many applications that tried to integrate with the mainstream by compromising blockchain principles ultimately failed. Successful applications in 2022 remained blockchain-y, open, decentralized, and trusted.

Vitalik’s Blog Post: What Applications in Ethereum Excite Me?
Vitalik’s article explored five categories of applications in the Ethereum ecosystem: money, DeFi, identity, DAOs, and hybrid applications. Vitalik believes that Uniswap, Rai, Dai, the Ethereum base layer, DNS, smart contract wallets, account abstraction, and privacy technology are examples of successful blockchain applications.

Money:
Vitalik highlights the importance of sound money that is censorship-resistant and has a fixed supply.

DeFi:
Vitalik emphasizes the potential of DeFi to improve financial services by making them more open, transparent, and accessible.

Identity:
Vitalik discusses the need for self-sovereign identity systems that give individuals control over their own data.

DAOs:
Vitalik believes that DAOs have the potential to revolutionize governance by enabling more transparent and democratic decision-making.

Hybrid Applications:
Vitalik sees hybrid applications that combine blockchain and non-blockchain elements as a promising area for innovation.

Vitalik’s Observations on DeFi:
Vitalik acknowledges the contradiction in the Ethereum space between the desire to expand beyond money and the reality that cryptocurrency as currency remains a more proven use case. He believes simple DeFi applications, such as stablecoins, Uniswap, and prediction markets, have provided tangible value over time, while more complicated DeFi projects often lack long-term sustainability. Vitalik criticizes newer DeFi projects for focusing on short-term gains and sacrificing long-term performance, leading to unsustainable APRs and eventual collapse.

Vitalik’s Perspective on Crypto Money:
Vitalik shares his personal experience using cryptocurrency for medium-scale investments, charity donations, and international transfers. He highlights cryptocurrency’s efficiency in these areas compared to traditional banking systems due to its frictionless international reach and neutrality. Vitalik emphasizes the structural advantage of cryptocurrency over fiat currencies, as governments have less power over it, promoting its potential adoption across borders. He recognizes that neutrality in countries with scale is often compromised, making cryptocurrency an attractive alternative for international transactions.

Use Cases and Value of Cryptocurrency:
Cryptocurrency has clear use cases in regions with unstable fiat currencies and limited financial connectivity. It provides a reliable store of value, especially in countries with hyperinflation, protecting savings from depreciation. Cryptocurrency communities in these regions are driven by genuine goals, not speculative gains.

Challenges and Opportunities in DeFi:
DeFi is in a limbo period, with uncertainty about the emergence of a Cambrian explosion of DAOs and new DeFi apps. The application layer holds significant wealth creation potential, but there are fewer low-hanging opportunities compared to the early days of protocols. Building successful DeFi applications now requires more effort and innovation, focusing on substantial value creation rather than quick profits.

Blockchain Identity:
Vitalik Buterin distinguishes between blockchain identity and blockchain identity platforms. Blockchain identity refers to the use of blockchain technology to create and manage digital identities. Blockchain identity platforms, on the other hand, are centralized entities that offer identity services on the blockchain. Buterin is bullish on blockchain identity but bearish on blockchain identity platforms due to concerns about centralization and potential misuse of personal data.

Identity as a Complex Concept:
Identity encompasses various ideas such as authentication, attestations, domain names, and proof of personhood. People often refer to “identity solutions” without specifying which aspect of identity they are addressing, leading to confusion. Different identity problems have distinct properties, including the level of centralization required, the extent of social factors involved, and the scalability of solutions.

Critique of Abstract Blockchain Identity Discourse:
Vitalik Buterin expresses skepticism towards abstract blockchain identity platforms and identity blockchains. He argues that these platforms often lack clear use cases and fail to address specific identity needs. Instead of abstract platforms, he emphasizes the importance of focusing on solving specific identity problems with tailored solutions.

Importance of Context and Tailored Solutions:
Buterin stresses the need to understand the context and specific requirements of each identity problem. He believes that one-size-fits-all identity solutions are ineffective and may even exacerbate existing issues. Tailored solutions that address the unique characteristics of each problem are more likely to be successful.

Standpoint of Identity:
Starting from a problem-first approach is more viable for identity solutions than a meme-first approach. Identity is emergent and composed from many different sources. Identity solutions should be a byproduct of something that already has a network effect.

Emergence of Ethereum Wallets as Identity:
Ethereum wallets have become more successful than PGP keys for identity due to their widespread adoption for financial reasons. Ethereum accounts, being private and public key pairs, provide the ability to sign into stuff and encrypt messages.

Standardization of Attestations:
Standards for attestations will emerge over time through successful protocols like Pope. Different protocols will eventually need to communicate and agree on cryptographic standards.

Advantages of Crypto Identity over Nation State Identity:
Crypto identity solves problems that people actually have, such as the desire for a decentralized identifier. Crypto identity allows people to do stuff on the internet without relying on centralized platforms like Google or Facebook. Crypto identity aligns with the dreams of many people for a more decentralized internet.

Decentralizing the Internet with Ethereum:
Ethereum can be used to decentralize parts of the internet, including identity. Decentralized identity can mitigate the bot problem and help identify humans on the internet. Nation-states may see the advantages of using crypto identity for these purposes.

DAO Use Cases:
Vitalik Buterin believes DAOs are less likely to replace corporations due to their limited ability to pivot and the need for regular infrastructure.

Two Sensible Architectures:
Multisig of seven people for agile collaboration with minimal smart contract logic. Robust smart contracts for long-lasting, high-stakes applications like stable coins and Proof of Humanity.

Non-Financialized Governance:
Financial use cases require governance that resists attacks from token holders. Stablecoins need collateral exceeding the token’s market cap and non-financialized governance.

Ethereum’s Tech Tree:
DeFi use cases build the network effect for identity, enabling non-financial governance. Identity is essential for knowing who’s human and who’s not on-chain.

Hybrid Applications:
Hybrid applications are centralized services that utilize blockchain commitments to constrain behavior and maintain system integrity.

Scalability:
Hybrid applications don’t face scalability challenges, as long as ZK-SNARKs are powerful enough.

Privacy:
Privacy concerns are reduced, especially if the provider is trusted. In some cases, even if the provider is not trusted, privacy can be maintained.

Deployment:
Deployment is simpler as it doesn’t require changes to the user workflow. It’s often an overlay that only interacts with those who choose to use it.

Examples of Hybrid Applications:
Proof of solvency protocols for centralized exchanges: Exchanges publish commitments to user liabilities and have assets on chain, proving they have matching assets. Games where servers post state to the chain using zero-knowledge proofs, ensuring they follow committed rules (e.g., Dark Forest). Voting systems that use advanced mechanisms for private, coercion-resistant voting, possibly limited to specific groups (e.g., Twitter polls).

Benefits:
Hybrid applications combine the efficiency of centralization with the robustness of decentralization. They can be improved by requiring them to submit data to the chain and be open about rule changes. The cost of implementation is low in the long run, making it viable for various applications.

Comparison to Layer 2s:
Hybrid applications share similarities with Layer 2s in posting data to the Ethereum Layer 1 to enforce adherence to rules.

Utility of Public Blockchains:
Centralized companies can utilize public blockchains to build trust by publicly posting data that allows users to verify their actions. This model offers a broad utility, enabling blockchain assurances for various centralized entities.

Challenges in Crypto:
Flashy scams and speculative projects often gain more attention and adoption than fundamental protocols and applications. This trend poses an existential crisis for crypto, as it may hinder the development of robust and valuable applications in the short term.

Accelerating Good Projects:
Emphasize agency and work harder to support meaningful applications. Organizations should allocate resources to projects solving critical problems. Engage in conversations with regulators to establish a regulatory environment that supports innovation.

Vitalik’s Role in Crypto:
Vitalik’s role encompasses supporting projects, exploring application space, and contributing to Ethereum protocol development. He aims to visit various Ethereum communities worldwide and promote the ecosystem’s stability and self-sufficiency.

Mana in Ethereum:
Vitalik considers the possibility of introducing mana, a limited resource for magic users in World of Warcraft, into Ethereum through multi-dimensional EIP-1559.

Action Items:
Read Vitalik’s article, “What in the Ethereum Application Ecosystem Excites Me.” Explore the article “Why I’m Less Than Infinitely Hostile to Cryptocurrency” from Astral Codex 10.

Overall Summary:
Ryan Sean Adams recommends reading an external article that provides a rational perspective on successful use cases in the crypto space. The episode concludes with a reminder that Ethereum is risky and investors could lose their investments.

Key Points:

External Article Recommendation:
An article from an outsider’s perspective offers insights into successful use cases in the crypto space. The article presents a rational analysis of these use cases. Readers are encouraged to explore this article for further understanding.

Risk Disclaimer:
Ethereum is a risky investment, and investors could lose their invested funds.

Farewell Message:
The episode ends with an appreciation for the audience’s journey with Bankless.

Call to Action:

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Gratitude and Community Building:
Gratitude is expressed to the audience for their support and participation in the Bankless journey. The goal is to build a strong and thriving Bankless Nation.