Vitalik Buterin (Ethereum Co-founder) – Ethereum – MEV, Staking Derivatives and Privacy (EthCC 6) (Jul 2023)


Chapters

00:00:01 Ethereum MEV and the Road to Decentralized Staking
00:12:52 Exploring Liquid Staking and Privacy in the Ethereum Ecosystem
00:22:46 Exploring Privacy Enhancements in Blockchain Technology
00:25:47 Innovative Technologies for Identity and Privacy in the Crypto Space
00:33:55 Network State Experiments to Safeguard Privacy in Web3
00:36:09 Online Communities Driving Real-World Innovation
00:42:18 Crypto Payment Infrastructure and Interoperability Challenges
00:44:25 Ecosystem Consolidation and Interoperability
00:46:44 The Future of Interoperability in the Crypto World
00:54:17 Challenges and Opportunities in the Crypto Startup Ecosystem During Bear Markets
00:56:58 ECC7 Highlights and Challenges

Abstract

Exploring Ethereum’s Future and the Evolution of Decentralized Communities: Vitalik Buterin’s Vision and the Growing Role of Privacy and Community in the Crypto Ecosystem



Introduction

In the rapidly evolving world of cryptocurrencies, Ethereum stands out as a beacon of innovation and progress. Vitalik Buterin, the co-founder of Ethereum, recently shared his insights on a range of topics from Ethereum’s future, including the Merge, advancements in zero-knowledge proofs, and the emerging decentralized social media platforms. This article, drawing on Buterin’s perspectives and broader industry developments, explores the critical issues of scaling Ethereum, the implications of Miner Extractable Value (MEV), and the vital role of privacy in the ecosystem. It further delves into the concerns surrounding liquid staking, notably Lido’s dominance, and examines the intriguing concept of in-person communities within the crypto space. Finally, it touches upon the revitalization of crypto payments and the ongoing challenges and opportunities in achieving interoperability between blockchain ecosystems.

Ethereum’s Progress and Future Prospects

Ethereum’s journey, marked by significant milestones like the Merge, is a testament to the blockchain’s steady advancement. Buterin emphasizes the need for scaling while ensuring the ecosystem’s quality, citing Ethereum Classic Consortium’s (ECC) expansion as a model of successful growth. Key research areas like proof-of-personhood protocols and MEV-related topics are under active exploration, indicating a robust and dynamic development landscape.

Despite the bear market, there is continued technical progress and development in the cryptocurrency space. Research conferences and communities continue to grow, and different verticals within the crypto ecosystem, such as ZK and enterprise, are experiencing growth and development. Conferences and events are becoming more targeted toward specific niches and communities.

The Complexities of MEV

The concept of MEV has become increasingly relevant in Ethereum’s discourse. Buterin’s proposed Enshrined PBS (Proposer Builder Separation) aims to integrate MEV mechanisms into Ethereum’s core protocol, balancing simplicity with security. He acknowledges the challenges posed by cross-domain MEV, suggesting that centralized exchanges or future market dynamics might offer solutions. Buterin also voices concerns over MEV’s potential impact on staking decentralization and proposes a multifaceted approach to maintaining decentralization that includes moral considerations and regulatory pressures.

Staking Security and Liquid Staking Concerns

Staking security is a critical aspect of Ethereum’s ecosystem. Limiting staking participation per individual and utilizing novel cryptographic techniques can mitigate risks associated with staking. Buterin points out the challenges in liquid staking, particularly regarding Lido’s dominance, which raises centralization and governance concerns. He suggests that disagreements with Lido’s governance could lead to a community-driven hard fork.

The Importance of Privacy in the Ecosystem

Privacy is a cornerstone of Buterin’s vision for Ethereum. He expresses concern over the erosion of privacy in various societal aspects and sees the crypto community as capable of offering credible privacy-preserving alternatives, especially in payments. The Tornado Cash controversy underscores the need for innovative solutions like the “proof of innocence” approach to maintain anonymity while excluding bad actors.

Privacy and Resignation: Resignation towards privacy often arises from the lack of viable alternatives that offer convenience and affordability. Privacy solutions should be automatic, default, and affordable in terms of time and money.

Privacy and Wallets: Privacy can be achieved without putting it on layer one of Ethereum, as wallets can support privacy contracts.

Advancements in ZK-SNARK Technology

Buterin highlights the ongoing exploration of ZK-SNARK technologies, including Nova, Goldilocks Starks, and Singularity. These advancements are pivotal in enhancing privacy and scalability within the Ethereum ecosystem.

Identity and Its Complexities: Identity involves various concepts, including proving actions by the same entity, attesting specific things about someone else, and proving personhood without revealing specific identity. Centralized alternatives for identity recovery, such as phone numbers, have vulnerabilities like SIM swapping attacks.

Cultural Perception of Privacy and Identity Nuances: Brian Crane’s observations on cultural apathy towards privacy issues resonate with Buterin’s emphasis on privacy as a default feature in Ethereum. Buterin further breaks down the concept of identity, criticizing centralized identity management systems and advocating for decentralized alternatives.

A Separate Tech Stack for Crypto

Buterin’s ambitious proposal of a separate tech stack for crypto aims to replace centralized services with decentralized alternatives, exemplified by Zoopass in Zersaloo. This approach showcases the potential of decentralized identity solutions in diverse applications.

Ambition for a Separate Tech Stack: The crypto space should strive to create a separate tech stack that is less centralized than existing centralized tech stacks. This stack should include alternatives for sign-in, payments, privacy solutions, and proof of humanity.

Identity as a Demonstration: Identity can serve as a demonstration of how various technologies can work together to solve problems while protecting privacy.

Challenges and Opportunities in Privacy Solutions

Despite the challenges, Buterin remains optimistic about the adoption of privacy-focused solutions, driven by developers passionate about privacy causes. He envisions privacy features becoming the default in the crypto ecosystem to encourage broader participation.

Zuzulu and Zoopass: Zuzulu, a pop-up mini-city, used Zoopass, an application that provides zero-knowledge proofs of residency without revealing individual identities. Zoopass can be used for access control, website login, and anonymous voting.

Scalability of Identity Solutions: Identity solutions can be scaled from small communities to larger ecosystems like Ethereum conferences and potentially even small countries.

Exploring In-person Communities in the Crypto Space

The emergence of in-person communities, like Zusulu-like communities and universities, highlights the benefits of offline interactions in fostering learning, collaboration, and a sense of purpose. Buterin’s perspective aligns with the growing trend of testing products and services within community settings for real-world feedback.

In-Person Communities: Vitalik Buterin discusses the importance of in-person communities, highlighting their advantages over online-only communities. He uses universities as an example, emphasizing the benefits of being surrounded by like-minded individuals pursuing the same cause. In-person communities enable real-time interactions, problem-solving, and the formation of strong bonds.

The Linux Community: Vitalik provides Linux as another example of a successful in-person community. He recalls the early days of Linux when user groups met regularly to help each other solve problems and learn about the operating system. In-person communities provide a supportive environment for individuals to learn and grow.

Reviving Crypto Payments and Interoperability Challenges

The resurgence of interest in crypto payments, facilitated by cheap Layer 2 solutions, sets the stage for a more accessible and convenient payment ecosystem. Buterin’s vision extends to interoperability between Ethereum and other ecosystems, with discussions focusing on Layer 2 solutions and multi-chain approaches. However, he remains skeptical about the long-term viability of bridges, citing security concerns and the impact of bridge hacks on trust in the ecosystem.

The Revival of Crypto Payments: Vitalik expresses his desire to see a resurgence of crypto payments. He recalls the enthusiasm for Bitcoin payments in 2013 and the few places that accepted Bitcoin at the time. Vitalik highlights the progress made in Layer 2 solutions and the potential for cheap payments in the near future.

Loopring’s Payment-Specific ZK Rollup: Vitalik mentions Loopring’s payment-specific ZK rollup as an example of a solution that achieved transaction fees below five cents. He emphasizes the simplicity and compression techniques used to reduce transaction costs.

Gnosis Pay: Gnosis Pay is a novel method for linking a Visa card to a self-custodial wallet. Users retain custody of their funds until they tap their card at a Visa-accepting terminal, at which point the funds are directly deducted from their wallet. Gnosis Pay can be offered as a service to other wallets, enabling them to issue their own branded cards. Additionally, Gnosis Pay facilitates native peer-to-peer transfers, allowing users to make crypto payments directly to each other.

Interoperability between Ethereum and other Ecosystems: The broader blockchain ecosystem comprises various chains and ecosystems, including Bitcoin, Ethereum, and Cosmos. Interoperability among these ecosystems is crucial for the seamless transfer of assets and data. Layer 2 solutions and multi-chain approaches are two prominent strategies for achieving interoperability.

Layer 2 vs. AppChain/Cosmos-like Thesis: Layer 2 solutions aim to scale Ethereum by processing transactions off the main chain while maintaining security through the Ethereum blockchain. In contrast, AppChains or Cosmos-like approaches involve creating independent blockchains connected to Ethereum via bridges or other interoperability mechanisms. The choice between Layer 2 and AppChain/Cosmos-like approaches depends on factors such as scalability, security, and the specific use case.

Challenges to Interoperability: Achieving interoperability between different blockchain ecosystems poses several challenges, including:

– Technical challenges related to different consensus mechanisms, data formats, and communication protocols.

– Economic challenges, such as the need for incentives to encourage participation in interoperability solutions.

– Governance challenges, including the need for coordination and agreement among different blockchain communities.

Consolidation of Ecosystems: Vitalik Buterin predicts a consolidation among blockchain ecosystems, resulting in a smaller number of meaningful and independent projects emerging.

Cosmos Ecosystem: The Cosmos ecosystem promotes chain interoperability, enabling seamless movement and communication within its ecosystem.

Security Differences: Layer 2 ecosystems vary in terms of security, particularly in extreme circumstances like 51% attacks, with implications for the extent of disruption.

Governance Decisions: Governance decisions in one ecosystem may have cascading effects on other ecosystems, requiring careful consideration and coordination.

Trade-offs Between Adaptability and Shared Security: Ecosystems can prioritize adaptability or shared security, but finding a balance between the two presents technical challenges.

Technical and Ecosystem Survival Factors: Buterin emphasizes that ecosystem survival and growth are not solely determined by technical factors but also depend on the ability to adapt and endure over time.

Layer 2 Ecosystems as a Social Experiment: Buterin views the development of Layer 2 ecosystems as a social experiment, highlighting the need for exploration and learning to understand their long-term viability.

Interoperability and the Future of Cross-Chain State Verification: Buterin and Sebastian Cuchillo discuss the current state of interoperability in the blockchain space, particularly at the protocol and state layers. Buterin expresses his skepticism towards bridges and the concept of assets being homed in one security zone and used in others, advocating instead for decentralized exchanges (DEXs) as a means of interoperability.

DEXs as a Viable Alternative to Bridges: Buterin believes that DEXs can provide a safer and more secure way to move assets between different ecosystems, eliminating the need for complex bridge constructions. He envisions a future where each ecosystem has copies of important DeFi applications, allowing users to seamlessly interact with various protocols without the risks associated with bridges.

The Impact of Bridge Hacks on User Perception: Buterin acknowledges the recent surge in bridge hacks and their negative impact on user confidence in these mechanisms. He suggests that these incidents have made people more hesitant to hold their funds in complicated bridge constructions, potentially leading to a shift towards DEXs.

Trustless Bridges and the Persistence of Security Risks: Brian Crane brings up the concept of trustless bridges and their potential to address some of the security concerns surrounding traditional bridges. However, Buterin cautions that even trustless bridges introduce the risk of a 51% attack on one of the connected systems, leading to potential coin theft.

Governance Issues and the Challenge of Centralization: Buterin highlights the problem of centralized governance in small ecosystems, where a small group of individuals can control a significant portion of the coins. He cites an example of a recent hack where an individual borrowed money, bought half of a governance token, and used their voting power to give themselves the treasury, resulting in a substantial profit.

Realistic Timelines and the Gradual Transition to Upgradable Systems: Buterin emphasizes the need for realistic timelines when it comes to handing over the keys and enabling upgrades to blockchain systems. He acknowledges the importance of being patient and allowing sufficient time for technology to develop and mature before entrusting it with significant control and responsibility.

Conclusion

Vitalik Buterin’s insights and the evolving landscape of the crypto ecosystem underscore the importance of innovation, community, privacy, and security in shaping the future of Ethereum and decentralized technologies. As the crypto space continues to mature, the emphasis on robust, decentralized solutions, coupled with a vibrant and engaged community, paves the way for a more resilient and inclusive digital future.


Notes by: Random Access