Dialogue with V God: The cost of destroying PoS security is higher, and I hope that the impact on Ethereum will be weakened in the future

Original title: "Interview: Vitalik Buterin, creator of Ethereum"

Original author: Noah Smith, Noahpinion

Original compilation: biscuit, chain catcher

Vitalik Buterin is one of the most well-known and loved figures in the crypto world, and Ethereum, which he co-founded with Gavin Wood, has become a leader in the entire Web3 world. What's clear is that he's a smart, friendly guy who just wants to create cool stuff, not fool anyone. In addition to being one of the voices of cryptocurrency, Vitalik also has an interesting Twitter account and a blog where he often expresses great depth and original opinions on various crypto topics.

As we speak, Ethereum, which powers most smart contracts in the crypto world, is undergoing an epochal transformation. In a process called The Merge, scheduled to be completed within two weeks, ethereum is switching the way it verifies transactions from proof-of-work (PoW) to proof-of-stake (PoS). This will allow the network to significantly reduce energy use and carbon emissions.

In the following interview, Vitalik and I discuss Proof of Work vs Proof of Stake, the recent crypto market crash, cryptocurrency security, decentralized governance , "network country" and so on.

Noah Smith:I think we should start with some current events. Almost all cryptocurrencies have crashed in recent months. Why do you think this is happening? How will this affect the future of the blockchain ecosystem?

Vitalik: Actually, I was surprised that the "crash" event happened so late. Typically, crypto bubbles last about 6-9 months after a bull market top, followed by a rapid decline. This time the bull market has lasted for nearly a year and a half, and people seem to have developed a mentality that high prices for cryptocurrencies are the new normal.

All this time, I've known that the bull market will eventually end and we'll experience a dip, but I just don't know when. It currently feels like people don’t understand the cyclical dynamics of cryptocurrencies well enough. When the price goes up, a lot of people say it's the new paradigm and the future, and when the price goes down, people say it's doomed and fundamentally flawed.

I do think the price drop helped to "reveal" some of the problems that were there to begin with. Unsustainable business models tend to succeed in boom times, because everything is going up, so is the amount of money people have at their disposal, so the model can be temporarily propped up by the constant influx of new dollars.

As we have seen with Terra, during a crash this model no longer works. This is most prevalent in extreme situations like high leverage and Ponzi schemes (crypto players in 2017 will remember "BIT-CONNE-EEE-ECT!!!"), but also in more subtle ways, like during bull markets Developing a new protocol needs to consider how easy it is to maintain high yields. When the price plummets, it is often difficult for newly established teams to sustain financially. Apart from my usual advice that people should remember the history of crypto and take a long view on this thing, there is nothing I can do to fight these cycles.

Editor's note: BIT-CONNE-EEE-ECT refers to the sudden announcement in January 2018 that BitConnect, a bitcoin investment and lending platform, will close its lending and exchange service. At its peak, BitConnect had a market capitalization of over $2.6 billion, guaranteeing investors a total return of up to 40% per month.

Noah Smith:Makes sense. Now please talk a little more about the financial aspect. For Bitcoin — the most widely held and traded cryptocurrency — we’ve seen this pattern repeat with fairly regular bubbles and busts, but each boom has a lower percentage return than the previous one. To me, this looks like a curve - as more and more people hold cryptocurrencies, new users get less and less financial gain. Have we reached a stage where Bitcoin adoption is saturated and returns drop to gold levels?

Vitalik: I think that in the medium term of the future, cryptocurrencies will stabilize with only Same with gold or the stock market. The main question is at what level will the price of the cryptocurrency stabilize? In my opinion, a lot of the early volatility has to do with the uncertainty of cryptocurrencies: in 2011, when Bitcoin fell from $31 to $2 in six months, people suspected that Bitcoin was just a fad, and then Crash forever. In 2014, this uncertainty is less than before, but it still exists. Then after 2017, the question of uncertainty shifted to whether cryptocurrencies could rise to higher prices, but only if they gained the required mainstream-approved legitimacy.

Although we have come a long way, this is still roughly where we are in 2022. These existential problems will become more and more apparent over time. If in 2040, cryptocurrency has steadily entered several market segments: it has replaced gold as a store of value share, it has become a kind of "financial Linux", ubiquitous and always available.

Alternative financial products become a really important target for cryptocurrencies, but not to completely replace mainstream financial products, then it disappears or completely takes over by 2042 The world's chances would be much smaller, and individual events would have very little impact on that probability.

Certain brains believe that the price of cryptocurrencies is trapped in a finite range (between zero and all the wealth in the world), Cryptocurrencies can only remain highly volatile within that range for so long, until repeatedly buying high and selling low becomes an arbitrage strategy that is almost certain to win mathematically.

Noah Smith:Furthermore, estimates of Bitcoin's energy use show that the energy consumption of the network is Coin prices are closely related. This is not the case for stocks, houses or gold - none of these assets require increased energy use to support higher prices. In the long run, this seems to represent a force that will weigh on the price of Bitcoin, doesn't it?

Vitalik: I usually compare the interaction of Bitcoin's demand and supply curves, how supply The question is treated as two separate questions. Difficulty adjustments ensure that the number of bitcoins mined is fixed on a schedule: currently 6.25 BTC every 10 minutes, starting around 2024 to 3.125 every 10 minutes, and so on. This timeline applies regardless of hashrate or price. Therefore, from an economic point of view, it does not matter that the protocol hands these tokens over to miners or core developers. This is why I disagree with the mentality that miners somehow "back" the value of Bitcoin.

A consensus system that consumes a lot of electricity is not only harmful to the environment, but also requires the issuance of hundreds of thousands of BTC or ETH every year. Of course, eventually the circulation will be reduced to close to zero, at which point this will cease to be a problem, but then Bitcoin will face another problem: how to ensure the security of the network...

These security motivations are also a very important driving force behind Ethereum's move to Proof of Stake.

Noah Smith:Let's talk about those security issues. A lot of people seem to think that if a token is to be called a "cryptocurrency," then the protocol that determines the transfer and ownership of that token must be secure. But from the conversation just now, it seems that you are more concerned about security, at least when it comes to Bitcoin. Can you expand on that?

Vitalik: Efficiency and security are not independent issues. The central question is: how much security does each dollar you spend each year buy? If the security of a system is too low, you can use more cryptocurrency as an incentive to increase security. At this point, you have gained security by sacrificing efficiency. In this post I dig into some of the economic reasons why Proof of Stake can be about 20x more secure for the same cost. Basically, being a Proof of Work miner has moderate ongoing costs and entry costs, but being a Proof of Stake validator has low ongoing costs but high entry costs.

It turns out that a network is only as secure as the cost of entry, since that is what an attacker has to pay. Therefore, the network's consensus system should have low ongoing costs and high entry costs, which is what PoS excels at. Also, there is a difference in how the two restore the network after an attack: in PoW, the network can only be restored by changing the PoW algorithm, but throwing away all existing mining hardware. However in PoS, the network can own the protocol and give away only the attacker's assets, so the attacker pays a lot, but the ecosystem recovers quickly.

As far as Bitcoin is concerned, I am concerned for two reasons. First, in the long run, Bitcoin's security will come entirely from fees, and the network has not managed to achieve the required level of fee income, so it's hard to be a potentially multi-trillion dollar system. Bitcoin fees are around $300,000 a day and haven't really grown that much over the past five years. Ethereum has been far more successful in this regard, because Ethereum is more designed to support user usage and build an ecosystem of applications. Second, Proof-of-Work offers far less security per dollar of transaction fees than Proof-of-Stake, and Bitcoin's migration from Proof-of-Work does not appear to be feasible. If the Bitcoin network reaches $5 trillion in the future, but only $5 billion is needed to attack the blockchain, what will users think? Of course, if Bitcoin does come under attack, I hope they will show a willingness to at least move to hybrid proof-of-stake, but I expect it will be a painful switch.

Noah Smith:Anyway, your argument about the security per dollar provided by Proof of Stake is very Makes sense. Bitcoin's high energy costs are actually security costs. But let’s talk about why Bitcoin proponents are reluctant to accept any alternatives other than PoW. Does the proof-of-stake idea allow large stakeholders to modify the network protocol to their own advantage and rob users of fees? Proof of Work has created a large class of miners, is there an incentive to protect their ongoing income going forward? Even though these miner revenues represent a holding cost for users.

Vitalik: There is some debate about proof of stake. In my opinion, the most powerful one is the "Costless Simulation" problem. The idea is that in a proof-of-stake network, an attacker can contact token stakers from years ago, buy their old private keys for a very low price (since those tokens have been transferred), and use those addresses to create a different chain Fork the main chain. During the post-fork vacuum period, the chain's historical data looks valid. A node that only knows the protocol rules and connects to the network from scratch will not be able to tell the difference between the real chain and the simulated chain provided by the attacker. In PoW, however, creating such a simulated blockchain requires redoing an equivalent amount of proof-of-work.

Editor's Note: The PoW mechanism follows that the longest chain is the correct blockchain, and attackers need to consume a lot of computing power to forge the longest block blockchain. The PoS verifier does not need to do a lot of calculations, but only needs to take out the transaction from the transaction pool, pack it into a block, and finally broadcast it. Therefore, there is no cost to forge a chain as long as the main chain under the POS mechanism.

In the PoS mechanism, this problem will be solved by adding a weak subjectivity: nodes need to connect to the network occasionally (eg once a month) , and nodes syncing for the first time may need to ask some source they trust (not necessarily centralized) to transmit the correct blockchain version. Stakers must lock up their tokens during this time, and if someone sees a staker supporting two conflicting chains, they can send a transaction to "slash" them, burning most or all of their token holdings. In the model, this all makes perfect sense. But PoW proponents are uncomfortable with weak subjectivity; they prefer a pure approach where validators only need protocol rules.

Actually, I don't think purism works in practice. In any case, validators need trusted sources to provide protocol rules, especially given that validators get software updates to improve efficiency or occasionally fix bugs. And I don't think the attack that purists fear will happen in reality: you have to convince a large group of people that the most recent block hash is wrong, and that some other hash is wrong, and no one but the attacker can tell whether correct. Once you start digging into the details, it doesn't seem feasible.

There are also attempts to claim that PoS allows large stakeholders to control the protocol, but I think that argument is completely false. They mistakenly think that PoW and PoS are governance mechanisms, when in fact they are consensus mechanisms. All they do is help the network agree in the right direction. Blocks that violate the rules of the protocol (for example, a block trying to get more reward tokens than the rules of the protocol) will not be accepted by the network, no matter how many miners or stakers support it. Governance is a completely separate process that involves users discussing aspects of the BIP and EIP, as well as calls from all core developers and coordination efforts of other official bodies, and suggesting improvements. Interestingly, Bitcoin holders (who tend to be the most PoW supporters) should understand this well, because the Bitcoin civil war in 2017 is a good example of the powerlessness of miners in the governance process. It's exactly the same in PoS; stakers just enforce the rules and help package transactions.

Compiler's Note: The Bitcoin civil war refers to the 2017 Bitcoin community split on the issue of block size, and then forked another Public chain Bitcoin Cash Bitcoin Cash (its Token is BCC, later renamed BCH).

One possible argument is that PoS has greater centralization pressure than PoW because the nature of digital stake makes it easier to centralize, or because PoW Mechanisms involve interested parties using local power to obtain cheap electricity. These are definitely things that worry me, although I think people overstate the problem. Especially at present, the Ethereum Proof of Stake has not yet opened the function for pledgers to withdraw ETH. If stakers participate in the pledge in the fund pool, they can sell their shares to others if they want to get their funds back at some point, so the fund pool provides a huge competitive advantage in obtaining liquidity. However, this will no longer apply when deposits are enabled next year.

Another problem with staking today is that stakers cannot easily switch pools (or switch to individual staking ), but next year they will be able to. As for miner decentralization, I'm just not sure that these highly decentralized small scale mining pools are important enough. Mining is a highly industrialized activity, and large farms outside the US (i.e. ~35% of global hashrate) appear to have close ties to governments, so PoW's censorship resistance is highly contingent in the future. The early era of highly democratized proof-of-work was a wonderful thing and greatly helped make cryptocurrency ownership more equal, but it was unsustainable and will be phased out.

Noah Smith:Let's actually talk about governance. Governance has always seemed to me the most promising and interesting thing about blockchain technology — a way to sidestep cumbersome business processes and create fluid, ad-hoc economic cooperation, especially in the realm of cross-border cooperation. I'm a big fan of the sci-fi "Rainbow's End" where most of the economy is based on this kind of cooperation. But so far, there seem to be a lot of problems with the way people are doing this - in fact, you've written a lot in your blog criticizing blockchain governance systems that try to remove all human judgment and trust. Can you briefly describe your views on how blockchain governance should work?

Vitalik: One of the reasons why blockchains are interesting is that they are Many things have many properties in common, but are not exactly like any of them. Just like a company, the blockchain provides tokens that can be purchased, and holders want it to go up. But unlike a corporation, a blockchain is more like a state, not relying on external authorities to resolve internal disputes. Instead, the blockchain is a "judge" that can adjudicate its own problems; you could even say that it is trying to become a "sovereign state" (of course, the blockchain is not really independent of the existing nation-state infrastructure. But in fact , and most nation-states have not achieved true independence).

As democracies aspire to, blockchains are highly open and transparent, and anyone can verify that rules are being followed. Blockchains have often spawned something akin to religion, inspiring a persistent and devout zeal among followers, but their economic components are far more complex than religions usually do. A blockchain is like an open source software project, with egalitarian ideals and, more importantly, the freedom to fork: if the "official" version of the protocol goes astray and violates what some parts of the community consider core values, the community can build around Fork their own ideas, and then they can compete with the original agreement for legitimacy.

But blockchains are not the same as open source software projects: in blockchains, billions of dollars of capital are at stake, And the cost of forking wrong is much higher. Just as some people believe that the scale of DeFi prevents Ethereum from having an Ethereum classic fork, if the cost of the fork is too high, its role in governance is more like a nuclear deterrent than a conventional weapon.

All of this means that the blockchain is a powerful infrastructure that can be used to host the governance logic of other applications, but the blockchain It is also a complex thing in itself, requiring a new and different form of governance. We’ve seen various forms of “constitutional crises” in both Bitcoin and Ethereum, most notably the Ethereum DAO fork and the Bitcoin block size debate. In both cases, both parties had strong and differing beliefs about the values that the protocol should embody, which was ultimately resolved by a fork. Interestingly, both Bitcoin and Ethereum eschew formal governance: there is no specific individual or council or voting mechanism for deciding which protocols become formally legal. There were calls from the core devs, but even then the rules were not clearly defined, and for anything truly controversial, the core devs often took a step back and listened to the community.

Of course, people often come out and say that this "anarchist" design looks ugly and needs to be replaced with a more "proper" one formalized system. But they almost never succeed. In my opinion, there is actually a lot of wisdom in our current "unstructured government". In particular, it nicely captures the idea that a relatively small core development team should be able to independently make detailed technical decisions that don't really affect the core vision, but operating something in depth requires a high level of philosophical theory , such as rescuing a hard fork event, or switching to proof of stake.

Application governance on the blockchain is a different challenge. There is also disagreement on how "forkable" the application is: is it like E Noah Smith, if governance fails, the community can fork with different rules and convince all infrastructure to migrate to the new rules. And the stablecoin DAI relies on a reserve asset like ETH, so you can't safely fork DAI without forking other underlying assets. It gives you additional support if the application is forkable, and you can take advantage of it (like Hive does). If the application is not forkable, then you do need some fully formal governance that can be trusted.

For a long time,I have always believed that the current popular Token-driven governance (governance is completed by voting by Token holders) is really not Applicable, we need to move to something better, especially something less "financialized". Token-driven governance naturally favors the rich, and in the long run there will be many ways to cause the system to crash. In my post last year, I described a smart contract that, in a very user-friendly way, allows token holders to automatically accept bribes to vote from the highest bidder in a specific way:

This turns every governance decision into an auction, resulting in only the most Wealthy participants have any say, and the community pursues soulless profit maximization, which at worst results in rapid extraction of community wealth and then rapid collapse of the project.

I think the best alternative to token holder governance is some kind of multi-stakeholder governance that tries to formalize Represent stakeholders, not just Token. Optimism is doing this with the concept of "citizenship", which is intended to be assigned to contributors and ecosystem participants, and which specifically states that this authority is not transferable. But we're still in the early stages of figuring out how this kind of thing works.

Noah Smith:Let's talk a little more about the possible replacement of human organizations with blockchain form. I really liked your in-depth commentary on Balaji Srinivasan's state of the web. Are there any valid attempts so far to create a "cyber-state" with encryption as an integral part?  

Vitalik: So far, I don't think the concept has really come to fruition because of the There is a fundamental difference between a blockchain ecosystem and a full-scale cyber nation. The blockchain ecosystem survives economically by convincing a lot of people to participate. You only need a few core developers, and even they don't necessarily have to make great personal sacrifices to live in a "normal" real-world city and look like any other job. But the cyber nation is something much deeper. Requiring people to venture out and move to a specific place, probably not a regular one, comes with significant disadvantages that can only be overcome by virtues created by the community itself.

I think the encryption narrative is deeply permeated by "morality", they are the core of the ecosystem in 2009-2014, when people don't know encryption as Whether an industry can survive, ordinary crypto users have almost no offline crypto social circle, and even legal issues are still uncertain. Encryption, as a continuation of a grand Internet liberal movement, is almost considered the spiritual successor of PGP, BitTorrent, Tor, Assange, Snowden, etc. These strong ideals act as the glue of thought and morality, allowing People make great sacrifices and risks for space.

Recently, the industry has matured, and with that maturity comes a certain dilution of morally relevant condemnation. This dilution favors mainstream adoption of cryptocurrencies, and in fact, newer blockchain projects often downplay this weirdness and aim for mass adoption. NFTs are extending the appeal of cryptocurrencies beyond their original users.

But at this point, this growth method also makes the existing blockchain too "skinny" to form a good network state. Ethereum has so many different user communities, many of which are deeply divided (e.g. there are definitely "sane" vs. rationalist debates, not to mention international disagreements). There is a strong consensus mechanism for defending the integrity and operations of the network, as we have recently seen the community unite around preventing on-chain censorship, but not yet united enough to form a nation.

Also, the offline crypto community's attempts so far have been poor. The problem I see is basically that they all use some form of "low taxes" as a promotional tagline, and while low taxes are a tempting benefit from a personal standpoint, if your goal is to attract really interesting people. And low tax slogans form communities that are really boring and crappy. Network effects are about quality, not just quantity. I think the "cyber nation" has a lot of needs for a brick-and-mortar community guided by certain values, and needs to provide a channel for expressing these values constructively, not just through zero-sum games or Twitter wars. The combination of the cost of living and the needs of offline communities, and not just the theoretical despotism of many other large countries. But none of the projects I've seen so far have done well.

Most of this answer is about culture. Whether we have on-chain land registries, smart contract titles or other minor things. I think the "Internet Nation" should try to think very differently from what we are used to. For example, I would try to downplay the idea of absolute ownership of specific land, houses, and apartments, and emphasize the economic coherence of communities through things like "crypto cities." I think innovations like this have more long-term value, and that alone isn't enough to attract people in the short-term. In the beginning, this concept combined with cryptocurrency and blockchain technology was mainly symbolic, and it will evolve into something more practical over time.

Noah Smith:One more question: In that article, you disagree with what Balaji described The Importance of Authoritarian Leaders to the “Cyber Nation.” Do you feel that your role as the founder and "spiritual pillar" of Ethereum is overemphasized by the media and crypto enthusiasts?

Vitalik: I was very hopeful from the beginning: with the development of Ethereum, my Influence can slowly dissipate. Many amazing works have already appeared on Ethereum. In fact, I think that's been happening for the past two years. In 2015, I basically did 80% of my research on Ethereum, and I even did a lot of Python coding. By 2017, I was doing much less coding, maybe 70% of my research. In 2020, I'm probably only doing a third of my research and coding very little, but I'm still doing most of the "advanced theory".

But in the past two years, other people have started to come up with high-level theories. We have a lot of great new Ethereum influencers like Polynya who has been doing a lot of thought leadership around layer 2 scalability. The Flashbots team has been responsible for leading the entire MEV research field. People like Barry Whitehat and Brian Gu have taken on the mantle of zero-knowledge proof technology, while Justin and Dankrad, originally hired as researchers, are increasingly showing thought-leadership qualities.

This is all a good thing! I don't think the public perception has fully shifted yet, but I hope over time people will start to understand that.

Noah Smith:Okay, this is my last question. Are you excited?  

Vitalik:I want to say that what excites me the most is not any project, but The way a whole ecosystem of many interesting ideas came together. On a technical level this is true, Ethereum is about to merge, and major improvements in blockchain scalability, usability, and privacy are all coming soon after. The same is true at the level of social and political ideas, with many ideas maturing around decentralized organisations, radical economic and democratic mechanisms, internet communities, and more.

Away from the frontiers of crypto science, the advancements in biotechnology and artificial intelligence are astounding. Some people may say that this may be a bit exaggerated. We're starting to understand what politics and technology will look like in the 21st century, and how every part of what we're working on will fit into that scenario.

By 2022, cryptocurrencies will finally make sense. Many mainstream organizations and even governments are using it as a way to send and receive payments, and I have a vague feeling other apps will follow soon. The future still feels like a lot of uncertainty, but we have a lot more perspective on how this is going to play out than we did before.

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