Fortune talks to Vitalik and his son: Many people are overly negative about Ethereum's transition to PoS

Ethereum founder Vitalik is not worried about the current cryptocurrency crash, and he doesn't like his creation being used for speculation.

Vitalik’s father is Dmitry Buterin, commonly known as Dima. He is a Russian-born engineer and entrepreneur. The family then moved to Canada, and Vitalik learned about Bitcoin from his father when he was a teenager.

Vitalik and Dima told Fortune that they’re used to cryptocurrency’s volatility, but this Father’s Day, DeFi’s most prominent father-son duo had another message for us : what other use cases there are for cryptocurrency.

“Crypto has had big ups and downs before, and it will again,” Vitalik told Fortune. “Downturns are certainly challenging, but they are also often times when great projects are born.”

Despite being a billionaire, Vitalik explained that money has never been his focus or motivation. He doesn’t like Ethereum for speculation and believes that blockchain networks have more use cases than finance.

Both Vitalik and Dima hope to see more applications beyond finance while continuing to improve Ethereum and its technology, and have already taken action. After Russian President Vladimir Putin announced an attack on Ukraine in February, Vitalik and Dima supported The Ukraine DAO, a decentralized autonomous organization that raised millions of dollars to support Ukrainians in the war. Both father and son donated to the DAO, and Dima is even the multi-signature wallet administrator of the DAO organization.

Sometimes, Vitalik posts his thoughts on the future of blockchain on the site. For example, recently he shared his idea for Soulbound Tokens, where a record of an individual's credentials can be recorded on-chain. In addition, he wrote about Ethereum's much-anticipated merge upgrade (The Merge), which will move Ethereum from a proof-of-work mechanism to a proof-of-stake mechanism and significantly reduce its environmental impact.

In this interview, Vitalik and Dima talk to Fortune about their journey in the crypto space, Ethereum’s regrets and vision for the future of the industry, the much-anticipated merger, the collapse of the Terra ecosystem, and more. The interview took place in early June before the cryptocurrency market fell sharply, and Vitalik and Dima also made comments about the crypto market on June 15.

Fortune: Dima, when did you first notice Vitalik’s interest in numbers?

Dima: When Vitalik was about three years old, his grandfather was a very smart man, and he was teaching Vitalik math, letters, and things like that.

Just like people usually use Legos to build buildings and other things. Vitalik really likes to use them to build figures. It was really fascinating to see that. I grew up in the Soviet Union and had very limited access to toys. So as Vitalik was growing up, I wanted to buy him a lot of cool toys. I first chose Legos because they are a really cool building set, and it was really fun to see him build with them in a completely different way.

Vitalik: After I came to Canada, my dad bought me some books to learn programming, and I started programming. At first, I programmed to make games for myself, and I clearly remember that I felt programming was very interesting and attracted to it from the beginning.

Fortune: Dima, the first cryptocurrency you introduced Vitalik to was Bitcoin, right? What initially attracted you to Bitcoin?

Dima: Well, I am very curious about new things and new technologies, and computers and their surroundings are one of the most fertile areas of human knowledge to explore human curiosity. So, I have been listening to podcasts about this. The podcast host is also a very curious person, and he touches on a lot of different topics. One time on his podcast, I heard about Bitcoin, which sounded very interesting.

I love that Vitalik is curious about a lot of things. It’s always fun for me to share new things that I’m curious about, “Oh, I found this interesting thing. Hey Vitalik, check it out. Maybe you’d be interested in it.”

Fortune: What were you thinking when Vitalik started working on Ethereum?

Dima: What impressed me was that when we were at home, Vitalik shared his white paper with me, and it was very well written. I was really impressed, and frankly, I don't follow cryptocurrencies that closely, but when I read the Ethereum white paper, it made sense to me. I think that's one of Vitalik's talents. He can take very complex things and explain them in a way that's easy to understand.

Vitalik: In December 2013, I returned to Toronto and my father was interested in my research, so I showed him the Ethereum white paper, and he found it fascinating.

Fortune: As Ethereum has gained more attention, have you been surprised when people have started using it? Did you anticipate what it would become?

Vitalik: No. At first I thought it was just a small project that we would finish in three or four months and then I would go back to university. But in January, I saw that people were very interested in the project and it was clear that it would take longer, and I realized I had to replan.

Another thing I totally didn’t expect is how much the crypto space has changed between 2017 and 2021. The rapid growth was definitely a big surprise to me.

Fortune: What do you think of the current market situation? Do you have any concerns or thoughts about the future?

Vitalik: The crypto industry has had its ups and downs, and it will continue to have its ups and downs. Downturns are certainly challenging, but they are also often times when great projects are nurtured. I am confident that the Ethereum ecosystem will become a more mature and successful blockchain ecosystem that will meet the hopes and dreams of millions of people in the crypto field in the next decade.

Dima: Markets are cyclical, especially crypto markets. I have been watching cryptocurrencies for more than a decade, and it will go up again and it will go down again.

Nothing has changed for me in terms of its long-term potential. I think cryptocurrencies are now entering the era of mass adoption.

The growth curve is never a straight line. It's not that smooth. Right now, there's a lot of fear in the global market, there's a lot of doubt. There's a war going on in Ukraine. The Fed is raising rates and so on. But humans are resilient and adaptable, so, we'll go through the market down and then build more things. Ethereum will merge into proof of stake. This is very exciting stuff. In terms of the outlook for crypto, nothing has changed for me. There's some short-term fear in the market right now, speculators will be eliminated, and yes, there will be some pain in the crypto space.

Fortune: Since the Terra ecosystem collapsed, people have been concerned about the spread of systemic risk. Its domino effect has had an impact on all crypto ecosystems. Are there any areas that are still lacking discussion?

VB: I think overall, the Luna crash is one of the important moments in crypto, and it reminds people that you can't just build a financial system and then pretend that negative situations will never happen. People can't just think about interest rates in the short term, they have to think about the long tail and these very special situations. I think this insight will ultimately bring stability to the crypto ecosystem.

Also, I think whenever this happens in the crypto space, at least in my experience, there are always frontline leaders who come out and clear the air morally, and you can see how different people within the market react, which gives you a better idea of ​​their character and what kind of person they actually are.

Dima: The Luna crash was a very painful event for a lot of people, who lost a lot of money in the crash.

I hope we don’t limit ourselves to “Let’s restrict. Let’s ban. Let’s stop this.” There are all kinds of hard problems in the crypto space that we can learn from and keep us moving forward, rather than trying to stop us in our tracks and keep us safe.

Fortune: What’s so great about cryptocurrency to you? What are you most passionate about?

Dima: When Russia announced its invasion of Ukraine, I was really impressed by the crypto community organizations that supported Ukraine (like The Ukraine DAO). They used cryptocurrencies very effectively to raise money and then funneled the money into a specific city where there was already infrastructure for people to exchange it into local currency, so that was really cool.

Another aspect of crypto that I'm very passionate about is that anyone anywhere on the planet with access to the internet is able to access their economic system. To me, that's a huge step forward. People can use crypto blockchains to make money, participate in companies, DAO organizations, sell their own art around the world, build crypto finance projects, etc. So I'm very passionate about this aspect. Because I grew up in the Soviet Union, which was very isolated from the rest of the world.

Finally, I would have to say new organizational structures, DAOs - I think there is still a lot to figure out about how they govern, how they control resources, make decisions, and other aspects. But to me, this is the future of how humans organize.

BUTA: I absolutely feel the same way.

One thing I noticed on my trip to Argentina late last year was that the regulators there have a different attitude toward cryptocurrencies. Often in the West, sometimes even proponents have a knee-jerk view that it's a gambling game for rich people. But in places like Argentina, it's a lifeline for local residents. People there use cryptocurrencies sometimes to save money, sometimes to buy and sell things. There are projects like Proof Of Humanity that are trying to use crypto to build a UBI there. There are projects that are trying to experiment with DAOs and decentralized arbitration and all these other technologies.

So I think there's a lot of demand for that in many corners of the world. NFTs are definitely a good example of that as well.

Fortune: Is your least favorite part of Ethereum the speculative nature? I know you can’t control how humans use Ethereum, but do you regret any use of Ethereum? How do you feel when you see use cases that aren’t great?

Vitalik: Yeah, I have no interest in a lot of the financial speculation stuff. I think sometimes Ethereum does get tied up with emerging things - like NFTs, I know there are a lot of artists around the world who are participating in the global economy through NFTs that they wouldn't otherwise be able to participate in, but at the same time, there are rich people selling $3 million monkeys to other rich people.

I think Ethereum is an open system. This means that no one person can fine-tune who can use it and who can't. We should actively support many applications that better reflect our values, but then again, if the system is fully decentralized, you have to trust people's choices.

Dima: Humans are very lonely, and we’re always looking for love and approval from other people. It’s like, “I have a Lamborghini. I have a Boring Ape NFT. I have a lot of money.” Inside we think, “Oh, I suck, but if I show the world I have all this cool stuff, maybe people will love me and have a relationship with me.”

FORTUNE: Vitalik, I saw that you recently asked your Twitter followers to share the things they most disagree with you about. What sparked this idea?

BU: I'm just curious. I just want to get different opinions from different groups of people and give my fans, who might be afraid to disagree with me, a space to have an equal conversation. It's an interesting experiment. I think some of the answers are definitely interesting.

Fortune: What’s your biggest takeaway?

BUTA: I don’t think there was any big takeaways. There was a lot of smaller impact feedback.

I have had some disagreements with fans regarding longevity. Also, a few people have complained about my fashion style.

Some people say I shouldn't be involved in politics, or I should be less involved in politics. And there are other people who say, "No, you shouldn't actually try so hard to be neutral, and when you believe in something, you should be willing to express your opinion more openly."

You can't please everyone.

FORTUNE: Do you donate to political organizations or parties?

VB: I think the challenge with donating to political parties is that politics is a very complex and very messy system. It's easy to have an effect that's completely different from the purpose of the donation. I just don't understand very well how the American political machine works internally.

My take is that I will focus on other things and so far it's going well.

Fortune: A lot of people also disagreed with your post on soulbound tokens. What did you think of the response?

Vitalik: There are definitely a lot of positive, interesting discussions, and there are also a lot of people who misunderstand the concept. But that's okay. I think it's something that has to be addressed because whatever is going to happen will happen.

One interesting dynamic that I see, and think people misunderstand something about, is that I notice that people tend to frame the debate as a choice between two prepackaged solutions, and people like to compare all the benefits and costs of both solutions. Whereas the style of debate that I like is: Let's break down the issues piece by piece.

I think there are always many options, far more than two. And in the discussion of soulbound tokens, people imagined that this thing called soulbound tokens existed, but it was just a collection of ideas in a PDF document.

Sometimes it is beneficial to do things on-chain, and sometimes it is beneficial to do things off-chain. We should figure out when to choose on-chain or off-chain, and work hard to develop the best solution.

Dima: One of the areas where blockchain technology has not been fully explored is reputation systems, and I think we will see more things happen in this area. As Vitalik described, soul-bound tokens are almost a collection of thoughts and ideas. It's too early for us to talk about specific methods now, it's fascinating, let's continue to explore this.

Fortune: Why is proof of stake the better mechanism for the much-anticipated Ethereum merger?

Vitalik: I think there are a lot of benefits to Ethereum switching to proof of stake. In terms of environmental issues, it allows the Ethereum ecosystem to consume fewer resources. In addition, the proof of stake mechanism can improve the security of the system. It makes the cost of attack more expensive and it is easier to recover the network from attacks, which people don't think about. In addition, the proof of stake mechanism is more censorship-resistant, and the computers running the verification nodes make it easier for miners to detect and shut down the program. Therefore, the proof of stake mechanism has a series of different advantages.

I think the goal of switching Ethereum to proof-of-stake was a clear plan around the end of 2014. I think it had been described as a possibility since early 2014, and that we would be happy if a new algorithm was discovered. By the end of 2014, we had enough confidence in that information and were ready to start development.

Dima: The big reduction in energy consumption is obviously beneficial, and of course the security of the network. Based on all the research articles I've seen, I firmly believe that this is a good thing. It's very important for the network.

I’m really excited to see this come to fruition because I’ve seen a lot of people put a lot of effort into this.

But having proof of stake doesn’t mean, “We’re there. This is the ultimate perfect technology.” At some point, proof of stake will probably be replaced, and we don’t know when, but it’s inevitable.

Fortune: Do you have any concerns about the merger, such as Lido Finance and centralization risk? Is this the most important thing you think after the merger?

VB: Yeah, I'm definitely concerned. I think that's one of the bigger issues that we're thinking about as we try to figure out how to change proof of stake in the long term. But I also think it's important not to catastrophize about this, and a lot of people are overly negative right now.

For example, even if Lido holds about a third of the staked deposits on the Ethereum Beacon Chain. First of all, if an attacker holds another third of the staked deposits, then we can't recover the Beacon Chain or anything else. But realistically, the worst an attacker can do is stop the merge for about a day or so, which is annoying, but not that terrible. So, it's one thing.

Another thing is that Lido is not a single staking node. I think they have like 21 node representatives running these validators inside of Lido, and they are decentralized between them. It's like an attacker sends a team of heavily armed people into the building and kidnaps them. The attacker can take all of Lido's staked ETH, but has to go to 21 different locations, some of which don't even know where they are. So, Lido is very different from centralized staking platforms or even centralized mining pools.

I think that even something like this today is pretty manageable and it's still a healthy, decentralized proof-of-stake system. At the same time, I think in the Ethereum community we really set the bar very high for ourselves, and higher levels of decentralization are definitely something we're actively working towards.

Fortune: Looking back at the entire crypto space, do you think the good outweighs the bad?

BUTA: I would say yes.

I think the most visible crypto applications are not the most common crypto applications. Someone traded $3 million for a Boring Ape NFT, and there are projects that occasionally get hacked for $20 million, and these events are real. But I think what cryptocurrencies do on a daily basis is not like that, not like active applications, not like those activists say that they use cryptocurrencies to protect themselves, but like people around the world who now find it easier to use cryptocurrencies to move money internationally, for businesses to cooperate or accept their payments across borders, and so on. Someone is doing this quietly, but this is also a very real use case.

Dima: When we try to evaluate whether anything is good or bad, it is very complex. There are a lot of different things, projects, people, etc. in the crypto space. Everything has a variety of different outcomes. So we have these great crypto applications, and we also have speculation, scams, etc. That's life.

Fortune: To sum up, how can Ethereum and the crypto space as a whole develop in a better direction?

BUTA: Obviously, I think one of the important things is to continue to improve the technology of Ethereum.

So switching Ethereum to proof of stake, making it a greener, more secure system; adding some scalability improvements like sharding and rollups, which will drastically reduce transaction fees for people; and finally, making the ecosystem cheap enough that regular people can use it—just doing a lot of work to make the blockchain ecosystem more secure, more user-friendly, and easier for many different types of people to participate in. I really hope to get back some of the constructive experimentation capabilities that we had in 2015 and 2016.

Additionally, I’m excited to see different types of applications emerge, especially outside of finance, which is a real growth area in crypto. I think DAOs can greatly improve how humans collaborate, form organizations, and work together. It really requires us to do a lot of experimentation and figure out what kind of DAO mechanisms make sense. This is what people are doing and making a lot of progress on it. We will see more amazing experiments and successes in the future.

Beyond DAOs, Ethereum identity, and soul-bound tokens, there are things like applications based on proof-of-attendance protocols or proof-of-humanity — I think there are a lot of really amazing things happening within the Ethereum ecosystem, and it’s only going to get better.

FORTUNE: Dima, do you have any parental words of wisdom for Vitalik this Father’s Day?

Dima: Being a parent is one of the greatest challenges facing humanity. In addition to Vitalik, I have two daughters who are younger. Supporting the growth of another person is a wonderful and challenging thing to be a human being, with so much growth and so many difficulties. I want to wish all parents a happy Father's Day.

No matter what you do, you're going to face failure. We're all trying to create the best future for our children, but the future is full of promise and uncertainty. At the end of the day, it's not about what we think about the future, it's about how we as parents can be more present in the present, how we can love our children more and be as supportive as possible. So, I want to celebrate this concept of parenthood.

Taylor Locke, Fortune Magazine