Dialogue with Vitalik: What’s next for Ethereum after the merger?

By Lauren Goode & Gideon Lichfield, WIRED

Translated by Katie Gu, Odaily

Ethereum co-founder Vitalik Buterin said that Ethereum's recent major upgrade paves the way for more technological changes and wider adoption. The Ethereum merger changes the way transactions are verified on the Ethereum blockchain, and this long-delayed upgrade is seen as one of the important moments in the crypto space. The merger does not make the current prospects of crypto applications and the blockchain technology they are based on more complicated.

WIRED Global Editorial Director Gideon Lichfield and Senior Writer Lauren Goode caught up with Vitalik over Zoom to discuss the recent bursting of the cryptocurrency bubble, whether decentralized technology can support societal-scale decision-making, and what the next great innovation will be after the merger.

Gideon Lichfield: Congratulations on the merger. What does it mean to you?

Vitalik : I'm very happy and indeed relieved. This is a transition that the entire Ethereum community has been working towards for the past 8 years. During this process, there were many people (both from the Bitcoin community and those who were skeptical of cryptocurrency) who doubted whether the merger would happen, that is, the switch to PoS. We are happy to have proven them wrong in the end.

Gideon Lichfield: Simply put, the envisioned advantage of PoS is that it consumes less energy and has a lower barrier to entry, so there is less risk of centralization and it can be more secure against attacks. So what is the biggest opportunity that PoS brings?

Vitalik : One of the biggest opportunities that PoS brings is economic resources, the ecosystem no longer needs to spend on PoW. All projects will have more resources than before.

Another reason is that the move to PoS brings greater legitimacy to Ethereum. The biggest reason for many institutional players, whether it is governments or companies, who are skeptical or do not want to use Ethereum is the issues with PoW and the system environment. After the merger, Ethereum is no longer a PoW network, which makes those who have such concerns more willing to use it now. There may be a lot of people who have been quietly watching on the sidelines who will now join in and start using Ethereum.

The third reason is that PoS is an opportunity to redesign the protocol in many ways. Aside from PoS or the ability for users to actually use it, probably the biggest problem people have with blockchains is scalability. Sending transactions is expensive because blockchains don't scale very well. The reason is that in this architecture, every node in the network has to verify every transaction personally. We already have technical ideas to solve this problem and turn Ethereum into a system for processing transactions that is still decentralized but much more efficient.

Lauren Goode: You answered my next question, what is the next great innovation we can look for after the merger? Can you give me a specific example of where developers have done something that they couldn't do before, or couldn't do it efficiently before?

Vitalik : Scalability is a big question. Ethereum has what we call the L2 scaling model, and our plan is to have incremental upgrades to it that allow the chain to handle larger amounts of data. And then there are these independent protocols that take that data as a component and build on top of it to create something like a "mini Ethereum" inside of Ethereum. Together, these will be able to handle a lot of transactions. And right now Ethereum can handle about 20 transactions per second, which together could be between 5,000 and 100,000 transactions.

There is a lot of work going on in the Ethereum ecosystem to build these L2 protocols. The merger makes it easier. The transition to scalability could be the next big thing that the Ethereum ecosystem does after the merger. In my opinion, it is equally exciting. It could also be the next game-changing factor.

Gideon Lichfield: After the merger, what impact do you think this year's Crypto Winter will have on Ethereum?

VB : That’s a good question. I’ve said publicly many times that I was expecting the bear market to some extent. One of the biggest factors that worked against crypto in the bubble of 2020 and 2021 was that cryptocurrencies were “inflated” before they were really mature enough to handle the level of attention they were getting. Looking at the graph of Ethereum’s energy consumption, I think more than half, maybe more than two-thirds, has happened in the last two years. If the consolidation had happened two years ago, it would have been better, and if it had been delayed another five years and happened after another very big crypto bubble, it would have been worse.

The same is true from a scalability perspective. Last year, Ethereum transaction fees (per transaction) were as high as $5 or even $20, and if there was another huge price bubble, it would be easy to see transaction fees rise to $100 or $200. Cryptocurrency is a way to empower the third world, bank the unbanked, and support those marginalized by existing institutions, but huge transaction fees are ridiculous.

I’ve always been keen to properly solve the scalability problem before the next big wave of adoption and attention to the ecosystem. One of the benefits of the temporary drop in prices is that we’ll have the opportunity to do just that. PoS doesn’t reduce transaction fees, but it’s important that we solve the scalability problem before we can go all out to reduce transaction fees.

Lauren Goode: The last article in your new book, Proof of Stake, was written in January 2022 and was about NFTs. The market has changed dramatically since then. How confident are you in some of the ideas you are exploring, such as the "Proof of Attendance Protocol"? It's worth mentioning that event ticketing seems to be one of the more effective uses of NFTs, but the NFT art market is currently "falling down."

Vitalik : My view on NFTs is the same as it was a year ago. I think sustainable NFTs will be useful NFTs. In the early days, there were tradable art and cat pictures, and a lot of these things have been destroyed. In order for an NFT to have lasting value, there needs to be some real benefit to holding it, rather than just HODLing.

The most successful use case for NFTs so far has been ENS names. The success and popularity of ENS names has made it so popular that people don't even think of them as NFTs. There have been a lot of people on Twitter in the last year using names ending in .eth, and I also have Vitalik.eth. These names are NFTs that live in a wallet at a specific address. If you have an NFT, then if I want to send someone ETH, or interact with them through an Ethereum application, I can type in their .eth name. In addition to this decentralized Ethereum ecosystem, a domain name or username on the internet has the same function in any type of chat application, which is really convenient.

Another interesting use is the whole NFT gaming space. Games like Axie Infinity were a huge success last year, but Axie Infinity got hacked and hasn't really "recovered". The reason, in my opinion, is that the people who designed these first generation NFT games had the attitude that financialization itself was enough to make the game fun (only Earn without Play). But this is obviously not enough, and even without the profit factor, for a successful NFT or P2E game, fun should come first. Whoever figures out how to make a fun blockchain game first will be the winner.

Gideon Lichfield: You write a lot about governance, and I’m interested in the potential uses of blockchain in government and society. What is the potential for using a decentralized system like Ethereum to make decisions about social issues (not necessarily crypto-related issues)?

VB : I think blockchains can be a great technical infrastructure for running a lot of these very low-level mechanisms. They're good for currencies, they're good for things like domain name systems. I think at least the formal components of the governance system can be partially on the blockchain. But governance also includes communication and everything around the system, and most of that will happen on the off-chain platform.

Blockchains like voting are an interesting example. For example, people often talk about the censorship resistance that blockchains bring. The phrase "censorship resistance" gives a lot of people the impression that "I want to do bad things, but I don't want to go through the government's approval." But people forget that voting does need to be censorship resistant. If the government can censor your ability to vote, it means that the entire democratic system completely stops functioning. It's important for voting systems to have a strong feature like "censorship resistance" because if you want to vote, then you should be able to and be very sure that your vote is being counted. I think blockchain, combined with some other types of cryptography, can do a good job of providing features like privacy.

Lauren Goode: In an essay in your new book, you write that “in traditional governance, there are ways for incompetent people to buy their way into power and leadership roles.” Can blockchain prevent this from happening?

VB : Yeah, and blockchains are able to prevent that from happening. That's one of the reasons why I think privacy technology is important. I keep talking about zero-knowledge proofs over and over again because I really believe in the importance of privacy, not only to help protect people from bad social structures, but also because it's a necessary ingredient to make many social structures possible.

The issue of corruption in elections, and the ability for people to buy their way into power, is one of those use cases where privacy becomes a really important factor, because if everything is transparent, then everything you do is subject to the incentives of other people.

Gideon Lichfield: How should cryptocurrencies be regulated?

Vitalik : I think it depends on what aspect of cryptocurrency is regulated. First there's the crypto base layer, and then there's the application layer on top. For the base layer, we work hard to prevent it from being regulated, especially by any one country. But once you start getting into the application layer, there are applications in different areas. The specific things that people do with blockchain are more likely to be regulated. It's much more difficult to publicly say that they are completely free of any kind of regulation.

In the Ethereum community, we are not ideological theorists. The Ethereum ideology is that if anything regulated happens, it is a betrayal of the values ​​of the blockchain and means that the entire system has failed. There are different parts of this stack, some will be less regulated and some will be more regulated.

Tornado Cash was sanctioned about a month ago, and this is just the latest example of the regulatory issues that are going on right now, which is how to deal with improving privacy on blockchains, which is a challenging issue, and on the one hand, I think financial privacy is necessary, and a lot of people agree with that. Cash is something that people have had for thousands of years. A lot of people don't want this dystopian scenario where a cashless society brings a greater degree of oversight to people's lives. But at the same time, there are real concerns about billion-dollar hackers being able to completely anonymize their funds and whether that creates a flow of money for bad governments.

Gideon Lichfield: Last question. What happens if Ethereum or Crypto fails to deliver on its promise to change the world?

Vitalik : If we solve the scalability and privacy problems and nothing interesting happens, there will definitely be people who will criticize us and say, “Look, there’s nothing really interesting about crypto at scale other than moving money around.”

You can't actually prove that crypto is useless just for the reason of moving money. If nothing interesting happens after we solve scalability and transaction fees, and some of the zero-knowledge proof issues happen (which I think will happen in the next few years), then the very pessimistic view of the technology will start to grow. So solving the scalability and transaction fee issues is the standard I set for myself.