Vitalik Buterin (Ethereum Co-founder) – KERNEL Fireside – Staking and Scaling (Mar 2021)


Chapters

00:00:45 Principles and Evolution of Ethereum 2.0
00:08:13 Striving for Simplicity and Elegance in Complex Technical Descriptions
00:11:48 Economics of Moving from Rewards to Penalties in Proof-of-Stake Systems
00:14:13 Economic Considerations in Proof-of-Stake Systems
00:18:32 Ethereum: Elder Game and Long-Term Vision
00:21:59 Ethereum's Scaling Journey: Roll-ups, Shards, and Ecosystem Evolution
00:24:36 Ethereum's Scalability Roadmap: Roll-ups, Sharding, and Inter
00:27:06 Challenging the Dragon Tyrant of Aging
00:33:32 Exploring Design Space in DeFi and Addressing Sustainability in Web3
00:45:28 Understanding NFTs and Energy Consumption in Ethereum
00:54:04 Multiple Systems as a Safety Net for Blockchain
00:57:43 Social Norms and Conflict Resolution in Ethereum
01:03:07 Ethereum Consensus and Energy Usage

Abstract

Updated Article: “Innovating Blockchain: Vitalik Buterin’s Vision and the Evolution of Cryptocurrency”

In a rapidly evolving digital landscape, Vitalik Buterin, a central figure in the blockchain world, has made significant strides in pushing the boundaries of blockchain technology and its applications. His recent research on achieving 99% fault tolerance, the potential of detecting 51% attacks, and the principles of user interface design have highlighted the nuanced complexities and vast potentials of blockchain technology. Additionally, Buterin’s insights on economic patterns in proof of stake, the importance of protocol clarity, and the ethical considerations of on-chain governance provide a comprehensive understanding of the future of blockchain. This article delves into these innovations and philosophies, offering a detailed exploration of Buterin’s contributions and their implications for the future of blockchain and cryptocurrency.

Vitalik Buterin’s 99% Fault Tolerance Research and Potential 51% Attack Detector

Vitalik Buterin’s research has led to groundbreaking advancements in blockchain technology, particularly in achieving a remarkable 99% fault tolerance. This was made possible by integrating observers into the consensus algorithms, which considered both threshold dependency and latency. Despite the innovation, Buterin acknowledges challenges in applying this directly to blockchain consensus due to the necessity of synchronous observers. Extending his research, Buterin has developed a concept for detecting potential 51% attacks on proof-of-stake blockchains. This involves monitoring blocks that are published on time but fail to be accepted into the network, thus identifying censorship and enhancing the security of online participants.

In the realm of cryptography, Buterin sees a distinct advantage for defenders, especially in the context of proof-of-stake (PoS) systems. Unlike Proof-of-Work (PoW), which establishes a symmetrical relationship between attackers and defenders, PoS creates a scenario where validators gain rewards while attackers risk their deposits. This dynamic acts as a deterrent, particularly with the implementation of penalties which serve to dissuade even irrational actors from repeatedly attacking a chain. The limitation of funds inherently restricts the number of possible attacks.

Principle-Based Design and Protocol Descriptions

Inspired by Brett Victor’s principle of immediate creator-creation interaction, Buterin emphasizes the critical role of intuitive user interfaces in blockchain technology. He advocates for principles that are not only actionable but also address previously unrecognized problems, thereby influencing the design and decision-making in blockchain development. Furthermore, Buterin underscores the necessity of clear and concise protocol descriptions. This approach is crucial for making complex technologies like blockchain more accessible and appealing to a broader audience, encompassing both users and developers.

Complexity, Economic Patterns in Proof of Stake, and Asymmetric Nature of Proof-of-Stake

Using ETH2 as an illustration, Buterin points out the delicate balance between complexity for scalability and the minimization of unnecessary components in blockchain design. He suggests that ETH2’s framework is versatile enough to express other Byzantine Fault Tolerance (BFT) protocols. The transition from proof of work to proof of stake introduces new economic dynamics, such as altering supply dynamics by eliminating forced sellers like miners, which could potentially impact the market behavior of cryptocurrencies, including Ethereum. Buterin also details the advantages of proof-of-stake over proof-of-work, particularly in terms of security, highlighting how the penalties and rewards system in PoS creates a financial disadvantage for attackers, thus enhancing blockchain security.

EIP-1559, which introduces coin burn, exemplifies a significant change in Ethereum’s economic structure. This not only strengthens the metaphor of Ether as an asset but also creates a more sustainable economic model for the protocol. In terms of rewards, the base rate is determined by the inverse square root of deposits. This approach balances fixed reward rates with total rewards, promoting collective rewards. However, the implementation of slashing conditions serves as a deterrent against the formation of large pools, a common practice in PoW mining.

Collective Rewards and Penalties, Ethereum’s Evolution, and Stability and Heterogeneous Splitting

Proof-of-stake systems incorporate mechanisms for collective rewards and penalties, encouraging validators to act in the network’s best interest. Ethereum’s collective rewards scheme motivates validators to behave in ways that are beneficial to others, while its collective penalty scheme discourages them from setting up systems that fail in unison with others. This dual approach promotes cooperation and prevents single points of failure, thereby enhancing the overall security of the network.

Buterin views Ethereum as a constantly evolving platform, akin to a game that provides ongoing challenges and growth opportunities. This vision includes a robust ecosystem of applications built on Ethereum that strengthens over time. The “elder game” concept refers to the aspects of a game that remain engaging for experienced players after the primary content is completed. In the context of Ethereum, this is driven by second-order players. Stability is the primary objective of the consensus layer, allowing for the development of innovative applications within the Ethereum ecosystem.

Buterin also discusses the concept of heterogeneous splitting, which involves a trade-off between paying higher fees to remain close to high-value activity and opting for cheaper alternatives in less busy areas of the network.

Roll-ups, Sharding, and On-Chain Governance

Buterin highlights the significance of roll-ups as a short-term scaling solution, with projects like Loopering and zkSync leading the way. In the long term, ETH2’s sharding is expected to further boost scalability. However, Buterin expresses reservations about on-chain governance for layer one protocols due to the risks of exploitation and manipulation. He advocates for a combination of off-chain governance and on-chain signaling as a more secure approach.

The scaling roadmap for Ethereum includes a significant increase in activity on roll-ups and the development of new scaling solutions over the next three years. This is expected to alleviate congestion on the main chain, reduce fees, and enhance throughput. Roll-ups are seen as a vital step in this process.

RAI Stablecoin, Sustainability, and NFTs

Buterin discusses the RAI stablecoin, noting its automated interest rate adjustments and governance limitations. He also highlights the value of open-source code in spurring innovation, though he acknowledges the potential for liquidity splits due to multiple similar deployments. Buterin addresses the environmental impact of blockchain, pointing out the substantial reduction in energy consumption with the shift to proof-of-stake. He also reflects on the financialization seen in DeFi and NFTs, advocating for a balance between financial and non-financial aspects in the crypto ecosystem.

Multiple Systems for Resilience and Government’s Role

Buterin emphasizes the importance of having multiple blockchain systems to ensure a balanced ecosystem where diverse systems provide checks and balances. The Steem and Hive example demonstrates the power of community action against flawed governance. He notes the growing recognition among governments of the utility of public blockchains for various applications, highlighting the increasing legitimacy and usage of public chains in diverse applications.

Scalability Roadmap and the Importance of Interoperability

Buterin foresees continued improvements in roll-ups over the next few years, leading to reduced transaction fees. ETH2’s sharding implementation is expected to further enhance scalability by a factor of 100, providing more space for roll-ups. In the long term, native execution on shards using technologies like zero-knowledge proofs may become feasible. However, Buterin stresses that interoperability between blockchain networks, while important, is not a substitute for native scalability within an ecosystem. He also notes that the transition to proof-of-stake (The Merge) is likely to occur before sharding due to its significance.

Blockchain Interoperability, Dragon Tyrants, and On-

Chain Governance

Buterin expresses concerns about multi-chain environments, highlighting the potential for ripple effects and failures across interconnected chains. He underscores the importance of considering failure modes and interoperability challenges. Buterin uses the metaphor of dragon tyrants to represent deeply ingrained fatalism and suggests pursuing technological solutions to overcome persistent problems like aging. He points out the potential of funding mechanisms, such as quadratic funding and NFTs, to support these efforts. Buterin remains skeptical of on-chain governance for layer one protocols due to the risk of exploitation and manipulation.

Governance Mechanisms, DAI, RAI, Liquidity, and Sustainability in Web3

Buterin discusses the risks associated with purely formalized governance approaches at layer one, suggesting that layer one governance should involve off-chain activities with non-binding on-chain signaling. He compares RAI to early MakerDAO’s single-collateral DAI system, noting key differences in governance and interest rate mechanisms. Buterin emphasizes the importance of diverse stablecoin experiments, particularly in early stages, to explore various design spaces. He also touches on the environmental impact of cryptocurrencies and the seasonal influx of new people into the crypto space, noting the need for long-term solutions to address issues like climate change.

NFT Explanation for Newbies, NFT Interest and DeFi, Energy Consumption, and Non-Financial Trust Spaces

Buterin defines NFTs as digital objects representing unique and single assets, such as art, domain names, or video game items. He is excited about the surge in NFT interest and hopes it continues, surpassing the interest in DeFi. Addressing Ethereum’s energy usage, Buterin mentions EIP-1559 and the future transition to proof-of-stake, which are expected to significantly reduce energy consumption. He acknowledges concerns about DeFi and NFTs’ focus on financialization and suggests balancing financial and non-financial aspects in the crypto ecosystem.

Imperfect Protocols, Totalitarian Regimes, Importance of Multiple Systems, Example of Steam and Hive, and Need for Multiple Systems

Buterin considers the possibility of designing imperfections into protocols to prevent the creation of unstoppable totalitarian regimes. He emphasizes the significance of having multiple decentralized systems to avoid any one system becoming too powerful. The example of Steam and Hive illustrates the power of community resistance to a hostile takeover, demonstrating the importance of having multiple systems for resilience.

Social Norms, Conflict Resolution, Blockchain-Based Conflict Resolution, and Human Work on Blockchains

The Ethereum community employs a variety of social norms and conflict resolution protocols to maintain harmony and resolve disputes. Blockchain technology offers unique opportunities for conflict resolution, and ongoing projects are exploring its potential in this area. Buterin acknowledges the possibility of human work on blockchains, such as proof-of-person systems, to ensure integrity and prevent attacks.

Summary of Vitalik Buterin’s Q&A Session

Buterin discusses proof of capture as a potential consensus algorithm and acknowledges the challenges posed by rapidly developing AI. He highlights proof of stake as a solution to reduce energy consumption and notes the growing understanding among governments of the utility of public blockchains. The host expresses gratitude for Buterin’s engagement and commitment to the Ethereum community.


Notes by: BraveBaryon