Ethereum

Transcript from https://podmenti.com/t/1ff3282d5be5a42b

Should we do the new theme music, even though it's not season nine yet?
Oh
I think we should. Yeah. It's a special episode. Let's do it.
Who got the truth?
Is it you, is it you, is it you Who got the truth now?
Is it you, is it you, is it you?
Me down

Another story on the
Welcome to season eight, episode eight of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I'm an angel investor.
Based in San Francisco, but today I am here with you in Seattle.
In the flesh. In the flesh.
And we
Are your hosts.
Well, first we want to give a huge shout out to Young Spielberg and Mike Taylor for crafting this new intro music that uh we use to open this episode. We have been wanting for years to do something distinctive for the show, and it was a real treat to work with both of them on this, and uh we have linked to
Both of their fine work uh on Spotify and just love both of these artists. They killed it. I am so pumped.
Me too.
Well, we started this season with our first blockchain episode covering Bitcoin.
It seems only appropriate to bookend it.
with the season finale.
on Ethereum.
So David and I are here together in person.
to tell this story.
And as you all know from our Bitcoin episode.
Bitcoin is some combination of currency, a store of value, a medium of exchange, which all frankly are up for debate if it's doing a good job at any or all of those things.
And as many of you who have bought or sold cryptocurrencies over the last six years know
There has been a
Big second game in town.
With
Ether.
ETH.
the token used as a currency.
in the Ethereum network.
But this time, it's not just about currency.
Ethereum is something completely different.
You can think of it more as a gigantic distributed computer that exists all around the globe.
In a completely decentralized way.
It's the world computer.
It is.
It is one single virtual machine that runs across millions of CPUs all at the same time.
Albeit one very slow.
virtual machine.
There is a strong argument to be made that this enormous tamper proof censorship proof computer is
is maybe the most important invention of the last decade, laying the groundwork for technology companies to come for the next several decades.
And while there are
kittens and rainbows everywhere you look in Ethereum land, there were some absolutely wild stories that transpired to bring us to where we are today.
This
thing has had a pretty wild last year, uh as as most of you will will know.
Having a market cap
Twelve months ago at around twenty billion.
Earlier this year at four hundred and fifty billionaire.
Sort of in the same twelve month stretch. It's been a heck of a year for Ethereum. This has been a heck of a year for a lot of things.
No kidding.
Well
Are you an acquired Slack member? If not, you should. And aside from all the normal reasons that we usually point out, I'm sure this episode will have quite a vibrant digital assets channel discussion.
It's a great way for beginners and the sort of crypto aware alike to have great conversations.
And uh as always, you can join that at acquired.fm slash slack. Another thank you to listener Austin Federer for curating that channel and for helping with several discussions as we prepared for this episode.
All right listeners.
Now is a great time to talk about a new partner of ours here on Acquired, Lagora.
The agentic operating system that is redefining how the world's best legal teams work.
Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?
So the founders did exactly what great founders do.
operate with obsessive customer focus.
They embedded inside a massive law firm.
For months.
They sat with the lawyers just watching how the work really gets done.
And that's how you get features that customers love, like tabular review where you
Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's bet here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.
And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.
And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Ligora numbers essentially
speak for themselves. When they have a head to head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries.
And crazily, they went from one million
To a hundred million in ARR.
In about
Eighteen months.

truly insane numbers. And that is the real test.
Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.
If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired.
And just tell'em that Ben and David sent you.
All right, David, take us in and listeners.
As always.
This show is not investment advice. David and I may have investments in the companies.
Assets.
Protocol tokens, uh Utility tokens, Ben. Utility tokens. Uh that we discuss and the show is for informational and entertainment purposes only. These are commodities, not securities.
Commodities. That's right.
Before we get into it, two things.
One.
This is obviously the season eight finale. Like, what a season. This is crazy. So we started with Bitcoin.
We did the New York Times company.
We did three freaking episodes on Berkshire Hathaway and we're ending with Ethereum.
We have May twenty third like this is wild. I just like it's so cool we get to do all this.
Crazy stuff.
Yeah, it's remarkable we can find bull cases in all of those things when
They've got daggers pointed at each other. Particularly crypto in Berkshire. Uh Well there are at least daggers in one direction from Warren and Charlie to cry to I don't know about the other direction. Oh, I think the bitcoin maximalists are are uh very excited to see the time of Berkshire Hathaway be in the past. Yeah, that that may that may be true.
So freaking cool. Thank you guys all for just
Being with us on this journey. So awesome.
Number two, before we dive in.
Huge thank you on this episode to
Camilla Russo and her book
the Infinite Machine, which came out recently and
served as basically the main narrative source for
History and facts here. Camilla is
An excellent journalist was part of the technology team at Bloomberg.
Bradstone has quite the crew that he's assembled over there.
And now Camilla runs the defiant.
Which I think is sort of a play that it's the the De Fi and A but
Wonderful book.
Highly recommend.
Everybody go check it out.
And uh thank you too.
Camilla for writing this.
Amazing history.
Okay.
So speaking.
Of history.
If you remember all the way back to the beginning of the season.
with our Bitcoin episode.
You'll remember.
That the Bitcoin white paper was published, of course, in
Two thousand eight.
But it wasn't until May of twenty ten when the famous pizza day
Pizza transactions.
Happened where uh
Two pizzas were purchased for what was it? It was like ten thousand bitcoin, something like that. That sounds right. Yeah, man. Those were some spendy pizzas.
It obviously took a little while for this whole idea of sort of
Crypto to
gain steam and and enter the not even the mainstream, but just sort of broader awareness.
And then the killer app.
for Bitcoin, which of course was the first killer app, which was the Silk Road.
Didn't launch until February.
twenty.
Eleven.
So it was right at that time.
The very next month, in fact.
In March of twenty eleven.
That a new user
Shows up.
in the Bitcoin talk.
Forums.
Online.
How many of these acquired episodes start with someone showing up in the forums? Someone shows up in the forums. I feel like uh probably like half the China Tech episodes.
I like so and so is hanging out on uh IRC with all the other
Future giants. Yep.
Amazing.
So the Bitcoin Talk forums
We're kind of the central hub of this sort of like early
Bitcoin community.
They were actually created, I didn't realize this, by Satoshi himself.
He created for him. Yeah. In two thousand nine.
And this is where the pizza transaction happened. This is where the famous Hodle post was in the Bitcoin Talk forums uh that generated that meme.
Super cool. So this new
User.
Who joins the forums.
is very unlike Satoshi.
In pretty much every dimension, and the most obvious
To mention that he's unlike Satoshi. He has a name?
He uses his real name as his there is no username.
the name. Like everybody else is like uh oh man in the episode who is the that smokes too much. There was the user smokes too much that had posted to the form. Uh but this this new user is just simply
Vitalic?
Puter it
Right there.
And uh and saying forever you will know me by my name, I'll be a public person, I'll be a a figure that will uh
identify with all of my comments and, you know, whether
for good and for bad, for being vulnerable, but also for galvanizing a movement this real name.
Tied to my real identity is how
I will do that. Real name, no gimmicks.
Vitalic.

So who is this character?
And why when everybody eliter almost everybody else in?
Bitcoin land and
Crypto Land at the time is using a pseudonym why is he willing to use his real name?
Well, he's use we'll use his real name'cause he's just a high school kid. He's got nothing to hide. He's got nothing to lose. He's seventeen.
Years.

He joins because he is looking for a way to earn
Some bitcoin. Pretty awesome, like sidekick as a high schooler. And where is he at this point?
He is in Toronto at this point. So
Okay, Vitalic seventeen.
He was born in Russia.
In post Soviet Russia.
to two undergrad computer science students at Columna.
Uh, which is right outside of Moscow.
It's kinda hard to imagine like
Just think about like being born he was born in January nineteen ninety four. I've never been to Russia, but
I hear January's pretty uh I have been to Russia in February and I can tell you it has frees your face off cold. Uh a whole new level. Probably makes Canada look like uh
Toronto look like Bombe and Southern Canada is may as well be the beach. Yeah.
So it's nineteen ninety four. He's born to these two like very young, very unprepared parents.
Not long after he was born, they would get divorced.
Russia at the time is in like total shambles.
The Soviet Union had collapsed a couple of years before.
There's hyperinflation like
double digits per month inflation people are
losing everything, there's a depression, people are starving, like
This is I didn't realize this, how bad this was.
Life.
expectancy in the in Russia.
declined by over ten years.
From the collapse of the Soviet Union.

Vitalic was born. Which is five years.
Yeah, yeah.
That's crazy. Like average life expectancy for people is down into the f like fifty years.
That is insane.
Hm.
So
On the one hand you've got like all this like
huge amount of turmoil he's born into and like grit that he's gonna have to develop out of this. His parents are getting divorced. I mean, that's uh so hard for anybody, let alone with all this other stuff.
But he also has
All these huge.
Opportunities so
He kinda wins the genetic lottery. Like both of his parents are
not only hyper intelligent, which of course Vitalik is as well. Anybody who probably everybody listening to this has at least heard his name, if not heard him speak.
He is.
quite literally a genius. Uh I bet that's overstated. I bet I actually think the majority of listeners do not know Vitalik's name. Oh, interesting. Well we'll have to
Just to level set for anyone out there who's like, what? What are you talking about, David? Like
He's a public figure.
to us because the last six months especially we've been diving into the world of crypto and blockchain. That's a good point. We we've done months of research to prepare for this, but like
Last year this time, did I know Vitalik's name? I don't think so.
That's funny. I sort of like think of him as this public intellectual. Maybe that's just because he's buddies with uh Tyler Cowan and uh
goes on the conversations. Yeah, he's been on yeah, he's been on some fairly mainstream podcasts at this point. Yeah.
Anyway, so
Not only is parents hyperintelligent, and of course Vitalic is
His parents are
Computer scientists.
Eden.
The mid nineties.
This is a great time to be a computer scientist.
So even though they get
Divorced, it's very amicable. So they agree his parents to
basically live their lives like together but separately and like number one priority is giving Vitalic
Every opportunity.
They can.
So the first and maybe most important of these things is when Vitalik is five
they decide to leave the so leave Russia and emigrate to Canada and they settle in Toronto.
Vitalic gets put into the Gifted program in Toronto's public schools.
Which is kinda funny. So like give he d he didn't speak English at all until he arrived.
In Canada.
It takes him a few years to really like
get comfortable speaking English. But he's clear a genius.
at math and computers and taking after his parents. He's also really good at writing.
Though. So and writing English.
So this is crazy.
When he's seven years old. I don't know if this is a school project or just something.
Vitalic did for fun.
He
Right.
A thirty page document in English
In Microsoft Word.
Called
The Encyclopedia of Bunnies and he structures it. He's really interested in bunnies and uh he structures it like a scientific paper. He's got like graph and charts and he lists all the chemical elements that like make up a bunny.
It's is it like typeset in La Tech? Like I could just imagine this being like a uh overly academic
Totally. His dad, uh Dimitri would uh would joke later that it was Vitalik's first white paper.
Hey oh.
Having read quite a bit of Italian's writing.
Preparing for this across
blogs from twenty thirteen and before, through the white paper, through a lot of the stuff he's written today. He is a talented
Succinct.
Incredible communicator.
Totally. Especially given how young he
Still is. Yep.
Twenty seven.
At this point.
as we're recording this.
So
For high school.
He's clearly so talented, they his parents decide to take him out of public schools and enroll him in this school called the Abelard School in Toronto.
I didn't even know schools like this existed. There are only about ten students per grade.
at this school and it's a very intensive curriculum, but also like lets kids
Explore.
Their own passions.
So this is where we pick up the story. Vitalik is a junior
In high school.
Both of his parents are still in tech. His dad is a entrepreneur who runs a software company.
And his dad tells him this is twenty eleven, tells him about this thing called
Bitcoin.
That
He's heard about, he's looking into is part of
The company, it's pretty cool.
And uh supposedly at first Vitalic.
You know, like all teenagers will say, Yeah, yeah, yeah, cool, dad, like whatever, like no big deal. Like I don't know, like crazy virtual currency.
But then he like
Obviously he spends a lot of time on the internet and he starts hearing about it himself. He's like, Oh, actually, maybe this is kinda cool. Maybe I should focus on it.
So he decides he wants to participate in this whole
Movement.
But he doesn't want to just go
Buy Bitcoin. Like
That would be really boring. Plus he's up.
high school kid. Doesn't feel like participating in the movement if you're just sort of buying the Yeah. He he really wants to like be part of this. He wants to
Fine.
Bitcoin.
So you would think at this point, listeners, you're probably going like this is where Vitalik turns all of Abelard's like computer labs into a giant distributed Bitcoin mining machine and like
Oh, I actually didn't know that.
Uh no, he didn't. Uh that's what you would like. I'm I'm thinking at this point that this is what he would be right doing. But no.
This is when he logs onto the forum.
And the reason he does is
Is the way he wants to earn Bitcoin is he wants to
right about Bitcoin as he's going deeper in the community. He's like
People are not doing a great job of
communicating and evangelizing.
What this is I think I can do.
I'm good at technic. I think I can do a good job.
So
specifically he creates his account to respond to
A post, a request.
For writers.
from the publisher of a organization called Bitcoin Weekly.
Which is a uh a news site that no longer exists, but you can go read all this in the forum.
The initial post reads
I am willing to pay five Bitcoin
For anybody who would write an article and authorized me to publish it under the public domain.
Pitch an idea to me and I will think about it. If I like your idea, you will get four days deadline to write your article and three days deadline to finish your final draft. I am one of the most reliable employer on the market.
Yeah.
You can imagine that.
The mustache twirling on the other end here.
So young Vitalik responds and he's like
Hey, I can write. Like why don't I write about
economics and the dynamics of why using, you know, credit cards doesn't make sense for microtransactions. Uh I can this is all sorts of stuff I can write about.
So the publisher responds, he's like, Yep, yeah, yeah, sure, send in your uh send in your submission and I'll see if I like it.
So
Uh Vitalik does. He writes the article. He gets paid for it.
in five bitcoin, which at the time was worth
Four dollars.
Today is worth what, five Bitcoin now. I hope he kept those. Yeah, I hope he kept those indeed.
Hundred and fifty K today.
Uh yeah.
Hundred fifty K plus.
His posts though, he keeps writing, his posts start to become really
Popular.
And so he strikes.
a deal with the publisher,'cause he's kind of the only one writing for this thing that people are reading.
Where because it sounds like a scam the way that it was posted about. Well, get this. So they decide that
What they're gonna do.
Vitalic's gonna write for free.
Fair.
Bitcoin Weekly.
They're gonna post the first paragraph of all of his articles on the site. And then they're gonna hold the rest
Of
The
Article.
Essentially for a ransom.
Where there's like a fee that has to be crowdfunded by
by people for a certain amount of bitcoin for each article that people have to pay into a wallet address to unlock
Everybody seeing the rest of the article. Interesting. So it's not just like a paywall. It's like the only way anybody gets to read this is if enough people pay. It's like a Kickstarter. Huh. Fascinating. It's like a Kickstarter for Bitcoin articles. Amazing.
So with this they start making like
Pretty decent amount of
Bitcoin.
Good for young Vitalik.
This goes on for a few months.
But unlike the original post, Kiba, the publisher
is not exactly one of the most reliable employer on the market. And uh Bitcoin Weekly goes under by the end of the summer.
That year in twenty eleven.
So
People that really like Vitalic's writing.
And
That
August.
A dude in Romania.
Named Mihai
Yeah.
And his girlfriend Roxanna, who were fans of Vitalic's writing.
They think
Hey.
What if we started like an actual
Magazine.
to give Vitalic's writing, you know, a new home, and he can be the head writer. So they reach out to him. Unclear if they knew that he was a high school kid in Canada or not, but
Magic of the internet. It's like you you kinda also don't have to disclose that. Exactly. Exactly.
So they reach out to him with the idea to start Bitcoin magazine, which they do. They team up with a few other folks in the forums.
And they get to work.
The initial idea.
Is that they're gonna start slow, they're only gonna publish online and then they'll work up to a real physical
Magazine.
One of the other people who becomes involved though, a guy under the pseudonym Matthew N Wright.
He has a different idea.
So
Miha.
he goes to incorporate this company they decide to incorporate in the UK. So he flies from Romania to London.
He's incorporating and then he's like in the middle of traveling, he's on his way back. Matthew, quote unquote, messages the group online and he says, Let's dream big.
And then he hits
Publish on a press release that he's written and I don't think he's told anybody about.
The press release is entitled
First issue of Bitcoin Magazine goes to print.
And it says a sixty four page glossy
magazine is on its way to the printers with a five thousand copy initial run and subscribers are gonna get their copies within two weeks.
Which of course
No one has done any of that stuff, right? Literally nothing has been done. This is like the um
The whole time I was thinking when I read this, you know the
The World of Warcraft Leroy Jenkins meme. Yes. That's exactly what this is.
The Leroy Jenkins the magazine. So it's not clear that this guy is someone you want to work with long term. No, I think he ends up staying for like another month or so and then they're like, All right, you gotta get out of here. But at this point, like you know, Vitalik's using his real name, he's starting to get out there in the community, a promise has been made, so they're kinda like
Hey, I guess we
We should make good on this so that we're viewed as reputable people.
Right, and like necessity's the mother of invention.
So Miha, Roxana, and Vitalik, they're like all right, we gotta do this.
Amazingly, they make it happen. I don't think they hit the two week.
Deadline, but
They publish a real
Physical.
Bitcoin.
Magazine.
It gets picked up eventually in Barnes and Noble, like it becomes like a real
Publication. It's pretty cool.
So with that
You know Vitalik, he's the head writer, he starts becoming even more of like a
Bitcoin and
crypto celebrity. Which at this point are kind of the same thing.
In this twenty what, uh twelve ish time frame.
There is other crypto.
I don't think so. Not of note, anyway. Certainly nothing of note.
And as we'll get into most of the other
projects that are happening. I think Satoshi's already disappeared at this point.
But most of the other crypto projects that were happening, I think were happening on top of the Bitcoin network at this point.
So it's fall.
Twenty twelve, Vitalik has now graduated from high school.
And he starts as a freshman
At the University of Waterloo, studying computer science. Super prestigious. School, yeah.
So
Vitalic at Waterloo.
He's still
writing all the time for Bitcoin Magazine.
He's taking like
a whole bunch of courses, you know, w this is no walk in the park to actually be a
C S student at Waterloo. Yep.
He also
Starts working as an assistant.
To this legendary professor named Ian Goldberg.
Do you know Ian Goldberg?
I don't.
So
He was one of the OG Cypher Funks.
back in the day, he hacked Netscape's SSL implementation.
As like a researcher.
ended up he was chairman of the Tor Foundation, helped get that off the ground. And for folks who don't know, Cypherfunk is the
email list serve of sort of renegade cryptographer, computer scientists that actually that wasn't bitcoin sort of hatched and proposed on the Cypherfunk email list. Yeah. Well, certainly in that community. Yeah so it's all intertwined. And um
Ian is uh buddies with Neil Stevenson, so I think like a lot of Ian's work kinda influenced a lot of Neil Stevenson sci fi.
Pretty cool. So yeah, Vitalic is uh
He's busy.
Right so he has sort of the like
side hustle thing that is earning him a name in this community with Bitcoin magazine. But then he also has the like
approved societal path of being at university.
where he is also connected to that community through his professor.
Yep.
So
By the time the spring rolls around of Vitalik's first year at Waterloo, he's ready to do an internship and start going. He's like he wants like I want to go get some actual programming, real world experience at a company, but I'm really interested in all this crypto stuff.
And right around this point is when
Ripple was getting started. So we we said actually we should have take take back what we said earlier that there were no other
crypto project there was Ripple.
And at the time, you know, Ripple still exists in its head.
Lots of controversy since, but
It was a super hot idea.
To bring it
Blockchain and crypto.
transactions into the existing
Banking systems they raised a ton of money.
So the founder of Ripple, we talked about this on the Bitcoin episode was Jed
McCaleb
Remember, he was the dude who also created Mt Gox. That's right. Uh he created Mt Gox and then he sold it. And so like collapse has he's not responsible for the collapse, but that's right.
That's right. Yeah, and Jed now runs Stellar.
Which is, you know, one of the many sort of the three.
Correct. Very credible project. Yep. Yep.
Whereas just to make sure we're super clear on Ripple, there's like a SEC lawsuit against them that's being worked through, right? It's being worked through. Yeah. I think it got delisted from Coinbase and um
Certainly it's accomplished a lot. I mean, at some point I think the market cap of Ripple was
In the tens of billions.
Wow.
Yeah, that's a a crazy story for another day.
But for here, so Jed
At this point Jed's already like
He's like also a big player.
in the crypto community.
Vitalik gets in touch with him and Chad's like, Oh yeah, we gotta hire this kid.
And they would have and history would have taken a very different turn.
Except
They can't get him a US visa.
So remember, Ripple is like
being a legitimate cryptocurrency company, the idea is they're gonna bring it to the
US financial banking system. So obviously they're a US
See.
Corporation. Right.
You gotta have a US visa, work visa to work for them. They can't get Metallica visa.
So like all right, you know.
Sorry, let's like stay in touch. We'll be friends, but
You can't like actually come work here for the summer.
So instead of
Vitalic says like well, you know, Beehi and I like and Roxanne, we're we're close. This Bitcoin magazine thing's going well.
I'm just gonna take the summer off. I'm gonna go over to Europe.
Go hang out in Romania and spend the summer with them.
We'll write for the magazine.
And Miha and Roxana were working on a project.
To basically build a legitimate
Silk Road. It's like Silk Road exists at this point. What does a legitimate Silk Road even mean? I was wondering this. We're gonna accept crypto payments. It's going to exist
as an online marketplace, but we're not gonna mail drugs through the USPS.
Basically it's just eBay. It's like oh yeah, we should just do a decentralized eBay.
Maybe.
I don't know if that's a good idea or not, but like clearly
the killer use case was drugs. Yeah. So uh needless to say that project didn't get very far.
At least at that point in time.
They end up having this kind of wild summer.
They move around Europe.
Miha and Roxana are also pretty young. I think they had graduated from college like a couple maybe a year or two before.
They move around Europe. They spend most of their time hanging out in an anarchist commune in Catalonia.
And for Vitalik, who's like he's always been this super, super serious kid, and like this is like mind expanding for him. So he's having a great time.
And by the end of the summer he email Waterloo and he's like
Hey.
I think
Crypto.
And Bitcoin is
is a really big thing.
I want to take a year off.
And just focus on working on these crypto projects and being in the community.
I'll be back in a year.
Much like actually the the sentiment of a lot of
super ambitious young technical people right now.
Who are
doing that on everything that Vitalik would go on to create. He was sort of the first to say, uh
Ma maybe it's time for me to take some time off to focus on crypto. Yep.
And also like it it just
hits me over the head how much you know the parallels between Vitalik and Mark Zuckerberg, you know, again ten years earlier.
That we're gonna keep getting into as we go along here. But same deal. I don't think
I think when Mark took that summer to move out to Palo Alto and work on Facebook.
I think he was intending to go back to Harvard.
Maybe he did the same like I'm gonna take a year off and be back and yeah.
Obviously.
Neither of these.
Guys end up going back to college.
So this starts
This kinda incredible journey that like directly leads to
Ethereum.
So
Witalic decides he's gonna do
There are all these bitcoin meetups and conferences that are happening all over the world.
He decides he has enough money that he's making from doing his writing, especially as Bitcoin
The currency starts to appreciate.
He decides he's just gonna travel around and go to all of them and meet the community and hear about all these projects that are happening and write about them.
What year is this?
This is summer twenty thirteen. Okay.
So we're we're very close to the start of Ethereum here.
He goes to
One conference in Amsterdam where he meets a guy named Amir Chetrit.
who was working on a project in Israel called colored coins.
This is where it's all gonna start to come together. So colored coins
was building on top of the Bitcoin network.
And they wanted to bring in
real world assets like real estate or fiat currencies, real world, you know, financial assets, securitize them and
Bring them.
onto the bitcoin.
Blockchain.
Okay. Yeah, that was an idea a lot of people were thinking about.
So he invites Amir invites Vitalik to come to Tel Aviv and
And meet up with him, see the team.
And there are a few other projects that are happening in Tel Aviv at the time that they're sort of collectively calling this group
Bitcoin two dot oh.
Like it's a self proclaimed
group of people in Israel that are going to create Bitcoin two dot oh. And it's essentially like a layer on top of Bitcoin, right? They're not proposing any changes to Bitcoin itself. That's the thinking. They're going to start building Vitalik would later use the analogy and other people would use the analogy of like, they're going to turn Bitcoin into a Swiss army knife. Like Bitcoin is the
the chassis of the knife and they're gonna build
You know, the small knife and the screwdriver and the toothpick and all the different tools around it. And what Colored Coins was doing was sort of like Hey, I'm gonna put the fact that I own this property on the blockchain so that this property or any physical fig of the real world can be sort of identified by a uh marker on the blockchain.
I think that's right. Just sort of it's like a representation.
I think that was the plan.
So Vitalico's over.
Meets up on a bunch of teams.
one of the other teams in this sort of Bitcoin two dot oh movement
is a team called Mastercoin.
And what they're thinking about
They're sort of uh
Swiss Army Knife tool that they're gonna build on top of Bitcoin.
is
Uh the ability for
Anybody to create their own
Other than that.
Currencies.
on top of Bitcoin the Bitcoin network. And then fundraise
For those currencies.
This sounds like something people might want to do in the not too distant future. For sure. And this is where it's worth uh
disambiguating a couple things just as a vocabulary lesson.
In the world of Ethereum, Ethereum, and I know I'm flashing forward here, Ethereum is the network and Ether, abbreviated Ethere, is the token, the the currency that exists on that network.
But
in the world of Bitcoin. The blockchain is called Bitcoin and
The coin or token is called Bitcoin.
And so there's like you can
buy and sell bitcoins and there's a blockchain
that exists that is also called the Bitcoin blockchain. And so their proposal here is basically like we want to find a way to create other currencies to exist on the Bitcoin blockchain that is not Bitcoin. That is not Bitcoin. Exactly. Yeah. It's computing. Bitcoin is basically Bitcoin is two things.
We talked about this a little bit in the episode. Bitcoin is Bitcoin on Bitcoin. Bitcoin being the currency and the Bitcoin network.
being the blockchain. Yep. So
Yeah.
The way
that Mastercoin was gonna make this happen.
Oh.
allowing these other currencies to exist on the Bitcoin network.
was through this
concept, this computer science concept called smart contracts, which people might have heard of and people talk about Ethereum being the smart contract language.
So smart contracts were actually
The concept was invented by Nick Sabo.
Way back in the day, who was the dude who proposed Bitgold?
If you remember from the the one episode. He was also sort of a cypher funk. He was actually a lawyer, too, I believe. He wasn't
technical. So he never implemented big gold. It was just a proposal.
But it's one of the couple
proposals that were sort of closest to what Bitcoin Definitely inspired Bitcoin. Definitely inspired. Where Satoshi is definitely r worked from that sort of foundation. Those were the shoulders that Satoshi stood upon.
So Save O
He defined smart contracts as quote unquote.
A set of promises remember, he's coming from a legal background, and
A set of promises specified in digital form.
Including protocols within which the parties
perform on these promises.
So what does that mean?
Basically smart contracts.
This is what I realized in doing the research. It's just code.
It's code.
Yeah.
Can be arbitrary.
Yeah, it's
Executes.
If and only if
certain conditions are met.
That was kinda the innovation. And then when you marry that with a
blockchain and something like Bitcoin where like
there is a ground truth. Like nobody can argue over whether conditions are met or not.
Then you seed
That
environment for these smart contracts to actually be really useful.
Right. Yeah. What what you're saying is
If everything is actually on the blockchain, the assets, you know, the the cryptocurrency and the conditional logic is also on the blockchain, then you can have things that will sort of provably
do what you think they are going to do. Whereas, you know, in the real world, you've got a contract that's written by a lawyer and then it takes people actually
carrying out the work that that contract says, you know, they're effectively dumb contracts. They then require a human compiler to go through and then
make sure that the logic that is in that contract.
can be sort of parsed and then interface with things in the real world. And you can get into all sorts of arguments about like, well, were these conditions matter, were these not conditions not met, and that's why we
Have our legal system and judges and lawyers.
Yeah.
you know, there's one spec that's written that is executable that has direct manipulation over the assets to move it. It's pretty genius.
Yeah.
Totally.
So
The Bitcoin network in Satoshi
It's not like he didn't know about smart contracts.
It uses it. There are smart contracts.
In the Bitcoin network.
But they're limited. There's only a
Very

that you can call functions in the programming sense that you can call as part of Bitcoin's
smart contracts. And so what Mastercoin and Colored Coins and all these other folks were doing the bit in the Bitcoin two dot oh movement.
They were writing essentially more functions that you can call in smart contracts.
So Vitalik like he's hanging out with these guys. He's like
Well, this is this is great. I love these ideas. I'm good at writing. Maybe I can help you guys write up white papers for
your projects and sort of help evangelize and crystallize what you're doing. That's great. They're like sure, but
Go to town. Work on white papers for us.
As he starts the process of writing, though.
for each of these projects.
He realizes like
Hey, you know these things are all separate projects and this is all kind of cool and building on top of Bitcoin, but
You're all just kind of scratching the surface.
Of a bigger idea.
This is sort of whack a mole of like adding
set functionality to Bitcoin.
But if you know anything about programming, like
The beauty of programming.
Is this idea of

A programming language that is turn complete. You can do anything. You can create a developer doesn't need any permission, doesn't need any set functionality. Yep. She or he can
Write their own functions and do anything.
And infinitum.
It's the way that any piece of software technology works.
that you have these varying levels of abstraction and at the highest, you know, user facing layer, you have this sort of application.
where that is designed for a specific purpose, often for a very specific type of user performing a certain business logic.
Take slack. You know, that's a very abstract
uh thing that is a field that you type in, you know, that's got a chat window.
It's an application.
And what people are sort of doing in this Bitcoin land, and this is a little bit of a stretched analogy here, but they're basically building
highly specific applications on top of Bitcoin and trying to sort of extend it. It's kind of like the Bitcoin network as a calculator.
Not a computer. Right.
And what Vitalik's basically saying is
But what if the instruction set
the sets of functions or or instructions that we could sort of call
were very general purpose, very sort of abstract, where there's
Even further.
um levels of abstraction that applications that can be built on top of that.
And it's
a dangerously difficult undertaking because it's exploitable in all sorts of ways. It it requires incredible amounts of security. It requires you to really think through every way that someone could use your very primitive set of uh of low level instructions to craft whatever they want.
But if you can do it.
Then it's a hell of a foundation. This is a huge idea. Huge idea. I mean, basically saying like Bitcoin is a calculator.
Let's build a computer. And if we're gonna build a computer, it's gotta be a wholly different

So he goes first to the Mastercoin team.
And tells them about this. He's like, Hey I'm working on your white paper.
What if you guys did this instead? And the MasterCarding team, you know
sort of half to their credit. They're like, wow.
That is a big idea. That's really cool.
And then have to there.
incredible detriment. They're like
We're gonna stay focused on what we're doing.
Ha
That was probably a mistake.
Let me just crystallize this even further, just cause I keep thinking on that. It is a stretched analogy, but it's like someone handed you a Macintosh without Mac OS for it.
And
what you said was, Well, I'm gonna start building Slack.
Or I'm going to start building, I'm just looking at my doc here, Chrome or Photoshop.
And then it's like somebody proposes to you
Whoa. Instead of just building Photoshop, build Mac OS. Yeah. And like imagine the
potential that we will unlock with that.
And you're like, no, but I really want Photoshop.
And we only have so many resources and there's this amazing email that's in the infinite machine, uh, that Camilla cites from the founder of Mastercoin Tibetalic.
He says, But I'd rather see Mastercoin doing its core functions.
Before we start experimenting with scripting. Scripting being
what you would need, like universal scripting language as part of this to turn it into a real computer. Yeah.
So
Vitalik, you know, at first he's a little like disappointed.
And then he's like, Wait a minute.
I'm Vitalic Buterin. Like I've got a following. People in cryptoland
No me. I'm good at writing white papers. I'm also pretty technical.
I think this is the future. I'm just gonna go do this.
So he leaves Tel Aviv.
And heads to
Probably the one place in the world uh
Certainly then and and probably still today, where the best place where if you've got that big world changing idea
You want people to take you seriously, even if you're not, you know, super well known.
He goes to San Francisco.
So and of course remember he knew the Ripple team and Ripple's based in San Francisco.
He shows up, he
Couch surfs he crashes.
on the couch in the apartment of Ripple's CTO, Stephen Thomas.
In Soma.
And he spends two weeks in San Francisco and he just like
He alternates between during the days he he goes like on long walks around San Francisco up and down the hills and
And then he comes back and he just writes the white paper. Like he doesn't talk to Stefan. Stefan wants things like, Hey, I want your thoughts on, you know, Ripple and like maybe you should write about Ripple, you know, and evangelize us. And he's like, No, no, I'm focused. And so he writes the white paper.
in two weeks, uh, what would become the Ethereum white paper.
At first he titles it.
The ultimate smart contract and decentralized application.
platform.
And then he kinda realizes, you know, again, Vitality's he knows how to rate, he knows how to
convince people, he's like, I need a cool name for this project.
So he starts scrolling through Wikipedia looking for science fiction terms that he can sort of use as inspiration, sci-fi terms.
And he comes across the word.
I don't know if it's pronounced ether or aether. I always thought it was aether.
Uh A E T H E R
Ether, let's just call it Ether.
This concept, I remember this from like way back in middle school. It originated with the ancient Greeks who thought that ether was the fifth element.
out there. You know, there's like what is it, wind, fire, water.
Earth, I think were the four elements. So the ancient Greeks postulated that those were like the human elements.
But there was this fifth element called ether that the gods the medieval god the it Greek gods breathed.
And
This idea kinda never got stamped out in human history, so like
in medieval times, just when the scientific revolution was kinda getting going.
People postulated that
Ether was
A invisible substance that permeated the universe that light
Travel the force.
Yeah, it's like the force. It's exactly it's like the force. And specifically, light was conducted through
Either. Uh the gods breathe it. Whatever. Anyway.
Been disproved. Not not the case. But Vitalik thinks this is perfect. He's like, Oh man.
The substance that the gods breathe, that it permeates the entire universe, that light gets, you know, conducted through.
Great, I'm gonna borrow this term. So actually ether does exist, and I'm gonna use it to title.
My project. So he comes up with
The Ethereum.
Network.
Of which the currency native currency on top of it is.
Either.
Boom.
It's born.
Pretty good name.
And if you read this.
White paper.
It's pretty
A long and B technically complex. Yes, this is not like the Bitcoin white paper. No. The Bitcoin white paper, while it does have some
reasonably complex mathematical formulas. It basically succinctly lays out
in prose, how each of these clever mechanisms exist and how they'll sort of all work together. The Ethereum white paper is like
Here's the instruction set architecture for a new type of assembly language and uh the the type of machine that it will run on and the registers are gonna look like this. I mean, it's like it's like going back to my operating systems class in college.
Yeah. We'll link to it. You should go look at it, read it, but like don't
Yeah, you should go read the Satoshi white paper. Anybody can read that and I understand that.
This
It's for a technical audience. The funny thing is then there's even a further technical specification on top of that called the yellow paper, which is like when I was at Microsoft, we had the PMs wrote the spec, and then once the specs were signed off, then the devs wrote the like uh the design document, I think, was actually how like the software would be architected. So it's sort of like the spec and then the
developer design doc of Ethereum.
So funny. That would come a little later.
More drama before then.
So basically like you know, we've talked about you know, Ethereum being the computer versus Bitcoin, you know, the calculator or the or like a
computer without an operating system.
They're two kind of like
big consequences of this. So
One.
You've got a
Turing complete.
Generally programmable.
Computer.
With a native currency in it.
You now have
Code with
Money.
You know, with Bitcoin you have money.
And not really code.
With normal non crypto world, you've got code. Lots of code, but completely separate from money. Completely separate from money.
Here.
So the way Vitalic Architects
Ethereum.
There are two types of accounts.
in the Ethereum network.
accounts that can hold and spend and do things with Ether and can execute code.
There are user accounts, you know, which humans would my wallet.
Like a wallet, yeah, they're user accounts.
But then there also are
Contracts.
And smart contract accounts.
They are exactly the same as user accounts.
So Yeah, this is kind of like the cleverness of abstraction thing that we were talking about earlier. It's like how low level and and
customizable can I make stuff? And it's it y you just see it show up in the fact that
Both.
User accounts and
Contracts are sort of a subclass.
of account.
Yep. And
the cleverness of, yep, this account exists over here and you can upload your contract to it. And of course you have to
pay and we'll talk about that of of of getting your contract to go live in this location. But then at any point after that, people can send inputs to it, the contract will execute and then the outputs happen money to it.
Yeah. Yeah. So you've got
Literally the code contracts.
That are the same as the user accounts meeting
They have their own money.
The code has its own money. This has never happened before. This is huge. So that's just one of the two big ideas. The other big consequence of this is
Is that
If this network actually gets instantiated,
It's gonna be a world
distributed computer like there has never been before. So like
You know, people call Ethereum the world computer. This is what they mean.
Of course there's AWS, there's Azure, you know, there's all sorts of like cloud computing out there, but like
Amazon owns AWS. And like you can go find like all the
locations that all their data centers are and like
You know, whatnot. It's like a
thing. It's unlikely it's ever gonna go down, but
Amazon runs it. Right.
Let's take the smart contract and just remove the muddy component for a moment here. It's sort of like thinking about
you know, serverless architecture or even s server architecture. You write some code, you deploy it to an endpoint somewhere, you expose an API that has an input and output, but like that code lives on one server. There's probably some replication, but like it's on a server in a data center.
When you deploy an Ethereum, your contract to a location on the blockchain.
That was replicated on the
all million or whatever, hundreds of thousands of nodes on the Ethereum network that
s sort of have a copy of that. Just like every node on the Bitcoin network has a copy of the ledger with all the
Transaction history. Same deal here. Every node on the network has a copy of all the code. Right. And as you're visualizing this, where your brain should go is
Wow, that's powerful. And then simultaneously it should go
Geez, that distributed nature, I could really imagine that being like
You know, it's it's hard to take it down. Like you can unplug a server from the wall, but like
Once that code's kind of deployed, that smart contract
It's pretty hard to undo. We are gonna get into that. And lastly, your mind should go to a place where you're like
Well that's pretty inefficient. Wait, so it has to go to ever uh what? That that's gonna cost a lot of energy and time and
Geez.
Maybe that there'd be a lot of like network congestion. So already
as you're starting to understand the architecture of this, you're like, okay, really, really good for some stuff.
And at great cost. Yeah.
I had this later in the notes, but to pull it forward just for context, you know, people talk about
Even today.
You know, in twenty twenty one, mid twenty twenty one.
the relative power of the
Computer.
That is Ethereum, you know, the world computer.
is roughly equivalent to a Raspberry Pi on a home broadband connection.
And that is running everything. But it is stable AF data. That's great. Maybe. Maybe. We'll get into that.
Okay. So this is all pretty
Freaking cool. Especially for like an eighteen year old.
So November twenty seventh, twenty thirteen.
Vitalic.
I think he's still in San Francisco at this point.
He's done his draft of the first draft of the Ethereum white paper. He emailed it out to a very small group of
people that he knows from the crypto community to ask for their feedback.
So Camilla uh writes in the infinite machine here that I'm gonna quote.
Yeah, Vitalik was quote unquote.
Sure his work was gonna get torn apart.
With an idea this big, there has to be a very good reason why nobody has tried

But that never happened.
Vitalic's email got forwarded and then forwarded again.
So that instead what he got was a flood of responses.
from people who were excited about the project and wanted to work with him.
Vitalik's vision was much too big to be constrained.
He was thinking about creating a base layer for everything, a computer that could simultaneously live in all the nodes of an enormous global network and
Which would be able to process anything you threw at it.
Without downtime or interference.
So developers could build whatever they dreamed of and nobody would be able to stop them or their applications.
Like an infinite machine.
Pretty freaking cool.
Very cool.
So cool.
Definitely sci fi.
Definitely. I mean
Either. We were all wrong. The Greeks were right. It exists. Uh Okay.
So
Pretty quickly after this, a core group of five people
Starts to form.
Two

ambitious thing together and try to make this project.
Happen.
Uh so there's Vitalic, of course.
There's Mi High. His buddy, his his Bitcoin magazine uh partner in crime.
There's Amir Chetrit, the guy that he met in Amsterdam, the colored coins guy who initially brought him to Israel. Amir's like, Oh huh, I get it. This is cool. I'm gonna go do this with you. Even though at colored coins, we're not gonna do this as a

I
I get where this is going and this should be its own thing and
No Amir's gonna it's gonna be some drama here,'cause Amir doesn't leave colored coins. He's still working on colored coins.
And then two more people.
So
The first is a guy named Anthony Dorio.
Who is also from Toronto and was a Bitcoin enthusiast, but
Unlike everybody else here.
actually had some wealth in um
You know, real world money. Not just He worked at Goldman Sachs, right?
Uh no, that was Joe. Uh he's gonna come a little later.
I forget how Anthony had made some money, but he had some money.
So he gets brought on to kinda like he's like, Hey, I'll bankroll this.
While we're getting started up.
And he's like, We should also get
My buddy
Charles.
involved in this.
Charles.
Hoskinson.
For all.
Ethereum and
Crypto.
fans who've been following this space here probably you're you're probably smiling to yourselves right now because you know what's about to happen.
So Charles
Had done work on um
The idea of decentralized cryptocurrency exchanges, which of course would become a very big thing on Ethereum a few years later. And these are DEXs, if people have heard of that. So Coinbase being like a centralized I mean it it runs in AWS. There's a New York stock exchange. Right. It's a SaaS application that happens to connect to a
bunch of blockchains underneath it. Whereas a decentralized exchange or a DEX is like
It uses decentralized technology to create the exchange trade. It runs in the nodes of the network. We'll get much more into this when we get into DeFi at the end of the episode.
The other thing that Charles had worked on was helping pioneer
this idea of a concept which was just sort of like, you know, out there at the time.
of a concept called a Dow, a decentralized autonomous
Organization.
Also gonna come back up in a minute here.
So Anthony's like hey Charles like you know he's a
He really knows the stuff. He's good, you know, and he's got some experience running projects.
he would be really good to bring on here and he knows what he's doing and
The group quickly decides that Charles should be
The CEO.
Of this fledgling.
Ethereum something.
Company foundation project. We will say.
Charles of course would later go on to found Cardano.
Quickly after that. So they've got
Vitalik, who wrote the white paper.
And is you know.
Technical but like
He's still kid. He's he's a second year computer science student, essentially. Right.
You've got a mere who's not technical.
You've got
Mihai, who's
not technical. You've got Anthony who's not technical, and you've got Charles who's like
Borderline technical, but not a developer.
So they realize like, hey, we need some devs. So
They bring on two developers, the first of whom is a
Amazing developer named Gavin.
Wood.
Who also for people in cryptoland, you know Gavin. Legendary name. Yeah, truly a gifted programmer.
Incredibly gifted. Gavin had intersected with Mihay and Roxana.
Before the
And when he hears about Ethereum and the white paper, which is now making the rounds in the community, he emails Vitalik.
And he says, Yes, you know, how far along are you encoding it? Can I help? Vitalic responds, like
Not far.
Yes. Yes start tomorrow.
So Gavin drops what he's doing and he gets to work right away on a C plus plus implementation of uh
Client to run.
Ethereum nodes.
On the network.
Gavin makes the first commit.
to Ethereum's GitHub.
On Christmas Eve.
twenty thirteen.
So he's dedicated.
Right around the same time, a Dutch developer named Jeff Wilkie
Also joins the project.
Wilkie was
at Mastercoin. So he was in Amsterdam, but he was working for Mastercoin uh and joins this as sort of a side project. He continues working on Mastercoin as well.
And Jeff gets to work on an implementation.
of an Ethereum client in Go in the Go programming language. So Gavin's working on a C.
version Jeff is working on it.
Go version. Which if I remember right from the book was sort of accidental at first. It was like, Hey, we both know different programming languages. We both kind of want to do this. We're both just gonna get started. It wasn't like this intentional, hey, we should have redundancy to make sure that
If we misimplement something in one of the languages, it doesn't become the way Ethereum works. Which actually ended up being one of the few good decisions in the early days of Ethereum.
And I think was probably a really
A boon to
have both of these versions out there.
So the next month in January twenty fourteen
The original five.
Plus Gavin and a few other folks. Not Jeff, Jeff decides to stay in Amsterdam.
They convene.
at an Airbnb in Miami.
Ahead of the
Miami.
Bitcoin conference. I thought the Miami Bitcoin Conference this year was like the first one. No, this would happen.
'Cause there's so many Miami jokes that are happening that like
we should totally acknowledge that
Miami twenty fourteen was when Ethereum first happened when it was presented when this group got together. Miami's got OG tech cred. Absolutely.
Do you know if the Bitcoin
Conference happens every year in Miami? That's actually a good question.
I don't know.
Hm. I should know.
But nonetheless it happened there in twenty fourteen.
So Vitalic, they decide that this is where they're gonna announce
and launch Ethereum. Vitalik is slated to give a talk.
Uh
The conference.
But this is all happening so fast. He's just giving a talk as like Vitalic Beauty and writer for a Bitcoin magazine.
He's not even on the main stage in the conference planning. Like it's it's hilarious.
So they all show up at the house.
Also
Joseph Lubin.
Joe who you were referring to earlier. Shows up at the house.
He'd been introduced to Vitalic through Anthony also.
Joe Wizard Goldman.
And then in the hedge fund world also a Princeton alum.
Go Tigers.
And they decide to bring
Him on board.
He's got some money as well, so he also so
helps finance things. So Joe and Anthony are just out of their own
personal finances are financing these early days. And it's not like there's ether to buy at this point. They're literally just spending the money to cover the costs. Yep.
So
They decide at the house that the original five will be co founders of Ethereum.
So not Gavin.
Not Jeff, not Joe.
And they'll get the co founders will get the largest personal stakes of Ether in sort of the pre allocation before the network goes live.
And that's sort of like decided in the early first day when the at the house
Gavin's there meanwhile. He's like he had been coding like
He's coding furiously at the house trying to get a test net up to
Yeah.
And as he's coding, he's kinda like he's looking around, he's like
Dude.
I'm the only one who actually knows how to build this thing here. What are all these other people
doing. What would you say you do here? Um
So he starts getting a little salty and he's like, guys
I should be a co founder and I should be CTO.
'Cause what are you gonna do without me? So he and Anthony actually have a pretty big argument, supposedly at the house.
But everything's happening so fast. Nothing gets settled there. They're like, All right, well let's just like get
to Vitalic's presentation and launch this thing and we'll see what happens after that.
Finally.
Presentation happens at nine thirty A. M. in the morning on Sunday. I think that was maybe the last day of the conference or something, January twenty sixth.
Still not on the main stage, but word had gotten out that this was gonna be a big deal. So
Vitalic takes the stage. The room is
packed. Like everybody in the crypto community is there.
And
He announces
Ethereum I think he announces that the test net is live.
And people go
Nuts. It's like a rock concert. Like there's a standing ovation, there's cheering, like
People are
really jazzed about this idea, as they should be.
I mean it's so ambitious. Like the reason it hadn't been done
is largely because it's just phenomenally risky and a ton of work, and then will require an enormous groundswell of community support.
in order to make it happen. Like Bitcoin already had this huge lead, all these network effects.
It's kind of like me saying like
I want to start a new operating system. And then I'm going to build a new app store on top of that operating system. Like it's it's just nutty. Yep.
I don't know. I mean we could rally the acquired community and make it happen.
Ben coin.
Acquired magazine subscribers. Unite. That would actually be pretty dope.
We should have a sixty four page glossy magazine. It's shipping in two weeks. One uh one for each company that we've covered. We are one of the most reliable employer on the internet. Okay. All right. Back to the story. All right back to the story.
So
Literally as Vitalik is walking off the stage.
Everybody and their mom is like
Hey, can I give you money? Like I wanna fund this thing. I want a piece of this. So before
the announcement. The team had been planning to do a five million dollar crowd sale of
Either to
boot strap the network and raise initial funds to
Pay back Anthony and Joe and get going and fund development.
Yeah.
They decide though in the wake of this
Like it's like the Roblox IPO. It's like we gotta postpone this. Like the demand is too high. Um So they said like hey, let's let's postpone
Let's leave Miami. Let's regroup.
in Switzerland because at the time Switzerland had the most sort of Swiss Swiss neutrality, best friendliest laws for crypto.
Companies.
In the world, and let's decide how to proceed.
Actually before they get there in the aftermath of the conference
Gavin kinda continues to be a squeaky wheel and they decide
You know, okay, great. We're gonna expand the group of f co-founders from five to eight. We're gonna include Gavin, we're gonna include Jeff uh from Amsterdam, who's running the go implementation.
And we're gonna include Joe as well,'cause he's now financing this. Big founding team.
That is eight people.
Of which like two and a half are technical on the founding team.
For an incredibly technical project.
The next big question though that they once they get to Switzerland they gotta start figuring out is like
Well
How do we structure this thing? Is this a company?
Is this a foundation like is this Linux? Is this what is this?
As Camilla puts it in the infinite machine, the question was would they be
Google.
A for profit.
company with, you know, revenues and
Cashful and profit. Yeah. Or would they be like the Mozilla Foundation.
Which, you know, still
would have revenue and resources, but is a non profit that would allocate resources to developers to
Both internally and externally to further.
The project. Yeah.
So here's where things kinda go off the rails.
Basically Charles
Anthony
Remember, Charles is the CEO titularly at the time.
Charles Anthony and Amir, the colored coins guy. They all want the for profit.
The Google route.
Yeah.
They're seeing dollar signs.
Which is so funny that they're seeing dollar signs because it would be a corporation. Like in in retrospect.
There were a lot of dollar signs because it wasn't a corporation. Arguably a lot more dollar signs, I mean.
We'll never know what would have happened otherwise, but
Meanwhile, Vitalik and Mihai
They want the Mozilla.
Right.
Yeah.
And then the developers, Gavin and Jeff.
I think mostly they don't really care.
They're just like
W T F guys like
We don't have anything right now. We gotta just build this damn thing, like and you're arguing about
Corporate structure, like
What the hell?
If you press them, they probably won't.
The Mozilla route.
But mostly I think they just don't really care.
This becomes a huge schism.
Charles wants to go to Silicon Valley and go do a tour and go raise money from Venture Capitalists.
and get the cash in the door, which they certainly could have done.
And then everybody else is like
You're gonna go raise money from VCs? Like this is still cryptoland. The whole point is to rage against the machine. You're gonna go raise money from the traditional financial system.
Meanwhile, fortunately for the way things would go,
crowd sales of initial tokens for various projects.
were becoming more and more of a thing on top of Mastercoin, which existed at this point.
And there starts to be a really viable argument that
Hey, you like you were saying, Ben
You can get plenty of money in.
By making this a non-
Profit Foundation. Yep.
The question though is is it legal?
'Cause like let's rewind. Has a foundation ever been behind
something where you are selling
Tiny chunks.
that can potentially be used in the future to have some utility.
But today
Or speculative in nature. Yeah, it's totally speculative.
And also because you're a foundation, you don't have shares. So it's not like you're selling pieces of your company because it doesn't exist. So it's this weird sort of like It really is a gray area. Right. But it really looks on the surface a lot like a securities offering.
Which of course would be like a major no no. Right. The SEC would have something to say about that. And not not a no no in the sense of like you can't
do it a no no in the sense of like you have to register with the SEC to do that. You you need like effectively an IPO. You need to uh list on an approved exchange. Like there are ways to sell securities to the public.
But not the way the Ethereum guys are thinking about it. Yes.
Uh, not to mention you know, there's the US, which is obviously the biggest financial market in the world.
But this is a world project and a world computer, and most of these people are not Americans. So
There's that.
Yeah.
So they retain a whole army of securities lawyers.
all around the world to figure this out. They even managed to get this is amazing.
A former SEC commissioner, guy named Joseph Grunfrest, who was SEC commissioner in the Reagan administration, he's now teaching at Stanford.
They get him to advise them.
On like what did
Do you know
And the question all comes down to like
Ether.
The currency.
What is it?
Is it a security?
Or is it a commodity?
Well, that's a good question. And the reason you're saying commodity is because like
It's a good that people can trade that has a utility rather than it being a share that people trade that is speculative that the price will go up or down in the future because it's tied to the performance of an entrepreneurial venture that's managed by some management team.
Yep. So if it's a security
No dice on this offering. Yeah.
If it's a commodity, all good. Like anybody can start
selling something. And the thing that like really gives them that credible argument around it being a commodity is the fact that it has utility in the Ethereum network.
Exactly.
So we mentioned gas fees. Like the way
the system works is
Ether is the currency on top of the Ethereum network.
But
Ether exists to pay fees.
Two.
the nodes on the network to get them to process.
transactions. It's effectively a bounty. And when we're saying gas fees, you you can think of gas and and ether effectively
Interchangeably. It it's effectively a bounty where you say, All right, I need someone to do something with this smart contract that I've written. I need it propagated.
And you need an incentive to do that. Yeah, here's what I'm willing to pay.
for you guys to send this all around the world.
Yep. So
Vitalik wasn't even thinking about the securities law implications of this when he
wrote the white paper, but you know, he calls it gas. He's like, this is the analogy. It's like you gotta buy the gas to put the gas in the car to get the car to go. Yep.
So they go to
I want to say good friend, like the Berkshire episodes and Solomon Brothers no. Grunfest, the former SEC commissioner
And they say like well hey um
So here's how this works.
It's gas fees.
Real world gas isn't
A security. Obviously that's a commodity. I can just set up a gas station and sell
Gas. I don't need to register that as a security with the SP. Unless I uh uh always Sunny style then go and hoard all the gas in my basement and the the back of a van and then try and resell later at a higher price. But yes, continue. So they they probably don't bring that up with Grandfest. Yes.
So like isn't ether the same thing? Shouldn't it be a commodity? Grevis kinda thinks about it and he's like
Yeah.
I guess you're right.
It's amazing. So
They take this to
their US securities law firm, prior Cashman.
And they get prior cashman to write an opinion letter saying that like based on Grandfest saying this
We are of the opinion that Ether is not a security. It's a commodity.
Bunch of other law firms also write opinion letters.
And boom, the doors are wide open, not just for
Ethereum to now do it.
Initial crowd sale.
Of their utility token.
But for anybody to do an initial crowd sale. Oh boy, a lot of people rubbing their hands together here. Oh talk about those dollar signs.
Go the C Corp route.

They would have changed their tune.
So once this is settled, they all get back together in Switzerland. This is now June
twenty fourteen.
to make the final call on the direction to go.
And everybody thinks going into this meeting that this is just gonna be like a rubber stand like
Great, we're gonna approve. We're going in the the Mozilla direction. We're gonna do the crowdfunding.
All good here, not a big deal.
Camilla titles this chapter The Red Wedding.
in the infant machine.
Basically, this becomes about way more.
than how they're gonna structure the company.
The devs are starting to really resent Charles as CEO and the decisions he's making and how he wants to run things and they don't think he's doing anything. They also don't think that Amir Amir's still running colored coins as well. So like
What the hell is this Amir guy doing? Like why is he part of this? He's not even doing anything. Yep.
So there ends up being like a mutiny in this meeting.
And everybody screaming at each other.
They all turned to Vitalik. Vitalik hadn't been in Switzerland. He was still traveling around the world
Evangelizing, you know, talking about Ethereum and the white paper and everything.
And he had just been awarded the Teal Fellowship to
Officially he th he then emails Waterloo and he's like, Hey guys, I'm not coming back and he drops out to work on this.
So he shows up and he's got like a full on
Full on mutiny on his hands.
So they all look at him and they're like
You make the call. You decide who's in and who's out.
Which
Can I just say incredibly foreshadows.
The
future of Ethereum where
Despite this being and and they're not saying the eight of them are this decentralized governance, but despite the fact that there's eight people with eight voices, ultimately
When push comes to shove, everyone looks at Vitalik and says, All right, what do we do? Yep, rightly or wrongly. There's no you know, it's not a company. He's not the CEO, but
Yeah, everybody looks at Vitalik.
So supposedly he goes out on the terrace of this house in Switzerland in Zug, uh, where they are.
And apparently he just sits there for like a super long time. He's got a yoga ball that he's like hugging to his chest. He's like rocking back and forth like a baby. I'm just imagining the weight.
Um
This guy's still he's twenty years old.
So meanwhile back in the house, everybody's like staring at each other like the tension is crazy. Finally he comes back in, it's like
Smoke is coming from the Vatican.
He declares
Ethereum will be a foundation, full stop and for all time.
Charles and Amir, you're out.
Good done.
You're done.
And
The project going forward is
It's me.
Gavin.
It's Jeff.
Joe.
And it's me, Hi.
And
You two are out.
This is pretty heavy heavy stuff. I I just like as I was reading about this, it was reminding me of uh some of the the Zuckerberg Yahoo vomiting in the bathroom moment. Oh, it it absolutely is that sort of like high tension, high drama.
Like pins and needles moment. Because this is literally like
the entire future of the project is on him here. Like this is like Facebook could have sold the Yahoo for a billion dollars. This is the same moment. The code's not done. There have not been any
Tokens sold yet.
Six, seven years later.
the market cap of all the tokens out there would be half a trillion dollars.
Yeah. Like this is a high tension moment because while of course they don't know that everyone believes that if this thing succeeds as the world computer
That's gonna be pretty valuable. Yeah.
Yeah.
There's a lot at stake.
So they incorporate
The Ethereum Foundation.
As a Swiss nonprofit.
They move forward with the crowd sale.
Can you incorporate does that word mean corporation? I don't know. I don't know if that's they start, they instantiate the uh uh to use a a developer phrase.
The crowd sale starts on July twenty second, twenty fourteen, at midnight Swiss time. It runs for two weeks.
They sell two point two million dollars worth of ether in the first twelve hours.
By the end of it, they sell a total of sixty million ether.
for eighteen point three million USD.
Which was way more than
Any other crypto crowd sale in history to that point. Yep.
I mean even just thinking back twenty fourteen, like
This is essentially a seed round for a company.
And eighteen million to use that the V C world analog.
That's crazy. Like nobody raised that much money. Totally. This was huge.
So the next question is, Okay, now we gotta actually launch the thing. Gavin's like, I've been telling you guys all along, like we gotta launch the thing.
The plan is that they're gonna launch in January twenty fifteen.
And then throughout the year of twenty fifteen, they're gonna roll out
The network and five
Phases.
By the end of twenty fifteen, they will have rolled out the final fifth phase.
Which is gonna be called Serenity is the code name. All five phases in that first year is all five phases in the first year was the plan.
And um
Serenity was gonna transition the underlying
network and blockchain from a proof of work blockchain.
To a proof of stake?
Blockchain. Yep. Which is gonna be a lot more scalable.
It's all all mapped out.
Non crypto people who are listening and wondering why we're laughing. Like why is David cackling like a madman in the corner over there? So yeah, we're now in June twenty twenty one.
There is no serenity. There is no proof of stake.
It's coming.
Soon?
Uh July there's there's a huge milestone theoretically this month.
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Before we dive back into the story and say, uh in e exactly all the ways in which this did not go to plan,
It's worth dwelling on this proof of work, proof of stake thing for a moment.
Because we haven't really talked about proof of stake.
We talked at the end of the bitcoin episode.
about how proof of stake theoretically was gonna uh require a lot less energy
but would retain a lot of the same characteristics of
uh that sort of uh security verifiability, uh tamper proof immutability. Immutability.
Let's save that for a moment. I do want to talk about proof of work because there was a key detail
in the Bitcoin episode that we missed in the history of proof of work.
Which of course is that the the um cryptographic way of consuming energy to do a very hard math problem and
end up with a mechanism that verifies the integrity of the chain of all the transactions, yeah, that came before. So
Of course, it was mentioned by Satoshi, uh, who proposed it in the Bitcoin white paper, proof of work, and its prior use in hash cash.
But it was actually invented way back in nineteen ninety three by Cynthia Dwark.
And Moni Naur.
And I did want to call this out because it is way too easy to make it seem like crypto was pioneered by a bunch of dudes. And so it's notable that There are so many dudes. Oh my God. It's hard to tell the story to a dude.
Uh.
It's all based on research done by Cynthia, a female computer science professor from Harvard in the early nineties. No way. Oh, that's so awesome.
It's funny how this concept that was originally intended to make it cost prohibitive to be an email spammer.
ended up becoming the underpinning of crypto blockchain this whole world piece. Because Cash Cash was an anti email spam. Yep.
Super cool. I did not know that. Yep, proof of work, ninety three, since he did work.
Wow.
Dang.
Vitalik wasn't even born then. It's wild. Wild.
Okay, so on July in the middle of July
July thirtieth, actually, uh twenty fifteen, middle of twenty fifteen.
The team finally releases the first of the planned
Five.
phases of Ethereum.
Uh the Frontier release goes live.
And Ethereum is open to the public.
Amazing.
Two weeks.
After it goes live.
The first
New
Other token crowd sale.
happens on top of Ethereum.
Auger, which is a decentralized
Prediction and betting market.
raises five point three million dollars USD.
In a token offering uh the Augur tokens, uh that is
Built on top of Ethereum.
They
Build on the quote unquote ERC twenty standard.
That makes it really easy to issue currencies on Ethereum, just like Mastercoin on Bitcoin. Now you with ERC twenty, you can do it super easy. ERC being the Ethereum request for comment. Kind of putting out there, hey, hey world, hey, open source friends. Here is a
proposal that I'm making and I'm requesting comments on it. Eventually people comment.
the the proposal gets revised and then at some point it receives a number and now it's a thing out there in the world that is the sort of standard upon which you can operate. Because remember, you know, Ethereum at this point, they are now operating and still do like
The Linux Foundation, like the Mozilla Foundation, you know, they're
People out there in the world, they say, like, hey, we should add this. And then the foundation is like, Okay, cool. Yeah, we'll add that.
So
The ICO boom.
Is born.
Just two weeks after the public launch.
The first ICO on Ethereum.
That's wild. That was something from the research that I did not realize that was so fast. Like, hey, there's this new thing, Ethereum. It's not even like cool, there's a world computer. Imagine all the uses for that. It's like
Gold Rush to launch my coin on this new thing. Now I do th I think Augur is like a
Real.
Project. Sure. I I I'm not saying all ICOs were scams. Um
But uh th there there were some uh I don't always drink beer. There were tulips in the garden.
Oh my goodness.
Yeah.
So the next year in twenty sixteen
Well Augur does happen very quickly and was a legitimate project.
At least to the best of our knowledge.
It does take a little while for people to realize how much gold is in these hills.
The next year in twenty sixteen there are sixty four.
I COs.
on Ethereum that collectively raise over a hundred million dollars.
So this is like I mean that's like a lot of money, people like dang, ICO boom, twenty sixteen.
Well.
Twenty seventeen.
There are nine hundred and sixty six ICOs that collectively raise over ten billion
Dollars.
Floyd Mayweather, DJ Callan, Paris Hilton.
Everyone's getting a little sweetener for promoting it on their social media. Oh my
Goodness.
We talked about all this on the Bitcoin episode. Amazing. But what we didn't realize was
This is the
Just like Silk Road was for Bitcoin.
I COs were the
Killer use case to bootstrap up.
The Ethereum network. And just like the Silk Road, it sort of didn't matter how illegitimate the initial use case was. What it did do was bootstrap a network that could be then used for all sorts of purposes now that you have this sort of decentralized played out.
Exactly the same way. So thankfully.
By the end of twenty eighteen the ICO bubble had deflated. Still though
Even in just like the first
I don't know when it really popped during twenty eighteen, but let's say the first six, nine months.
Uh I'm making that up, but I'm estimating.
of twenty eighteen, there were twenty three hundred ICOs that raised eleven billion dollars
Oh my god.
Uh at the start of twenty eighteen
Ethereum had risen up to
A for a long time, all time high of just over
one thousand three hundred and fifty dollars.
Per token.
Giving it a market cap of over a hundred billion dollars.
And then when the ICO bubble deflated at the end of the year in December
Ether had crashed to eighty four dollars a token
Or a market cap of just under ten. So ninety percent.
of the value in
the Ethereum network or of the Ether token.
Vanished.
Over the course of twenty eighteen. It is fascinating that this bubble
had a very specific reason for it. That like
there was utility in Ethereum to be used by anyone launching an ICO. Like a lot of the times there's these bubbles in crypto where you can't quite
point to exactly the reason why the token was getting so much more valuable other than like
a snowball of excitement building around it. But this one, it was very clear what the boom was about and what the bus was about. It was about the money. Yeah. It's all about getting the money.
Alright, so speaking of money, there's one before we
They got it can't wait to move on from ICOs. We got one more we gotta talk about.
That is probably the wildest part.

Episode.
So one of the what was it, sixty four, I think I said in twenty sixteen ICOs, something like that. You know, sort of in the early part of the tip of the spear and the wave.

that a group of folks had put together
That they call it Slucket.
S S L O C K dot I

And the idea behind Slocket.
was
It was gonna be a decentralized
Airbnb and other sort of sharing economy.
platform.
Where
You could send transactions into the blockchain.
And use those to unlock
hardware locks like on doors and on bikes and on cars and stuff that they would be connected to the blockchain and these specialized hardware's uh hardware and then you would pay the rental fee as part of the, you know, transaction on the blockchain.
And it would all happen on smart contracts on the Ethereum network.
I mean okay, sounds like freaking crazy and really dumb now, but at the time people were excited.
So they decide to do an ICO for this.
But the Slot founders, they were like real believers. Like they're like yeah, this is the future. And like a lot of people were excited about this. Thank God for the diaspora of human enthusiasm.
and creativity because it when some new piece of technology comes out like this, nobody knows what the future is. Nobody knows what the killer use cases are. And so thank God
There are legions of people that take their own harebrained ideas and try and execute them because absent that, we would never have the discovery mechanism to discover what the actual great applications are. Yeah, totally.
You could argue whether it was good or bad, the the Slocket team.
Did this.
Remember though that like I said, they're true believers. So they get a bunch of money in the I So or they either get a bunch of money. No, no, th it hadn't happened yet. They were lined up. They thought they were gonna get a bunch of money.
They said
Hey.
We're gonna go a step further.
Remember
I introduced a little while back with Charles Hoskinson the idea of it.
decentralized autonomous organization.
Which, by the way, that is actually in the original Ethereum white paper. Yeah, as an idea of something you can do.
On Ethereum.
Yep.
And for folks wondering like okay, this w these words decentralized autonomous organization.
To the extent that a company
A corporation is made up by a set of documents. You know, you've got your articles of incorporation, you've got employment agreements, like a corporation
is defined by a big pile of dumb contracts. Yep. Uh
Dow or
And the corporation is defined by
You know, board of directors and a CEO and a management team that are making the decisions.
Totally. And those people are given powers.
By the contracts, by the the documents.
The Tao is simply that
But
with smart contracts. Like it's all in code. Yeah, why why couldn't you have an organization that runs in a provable
sort of code legislated way.
In a Down.
The allocation of resources, be it capital or
time or effort or dev resources or whatever.
Get allocated.
in a decentralized way by people who hold the tokens of the Dow and everybody can vote.
And they're protection mechanisms for minority token holders versus the majority. And anybody can take their money out at any point in time if they disagree with the direction the Dow's going, but it's a
It's a decentralized organization. Okay. Pretty cool.
So the Slocket guys, they're like, We're gonna be a Dow. So if you don't like what we're doing
You know, you c you can vote, you can have a say in the governance of Slocket.
And if you don't like what we're doing, you can take your money out.
Then they decide to go even one step further. They say, you know, actually
Like we think the Slocket thing is cool.
But there might be other things people think are cool. Maybe cooler than Slocket. We'll allocate our money to anything.
And we'll just let the Dow
Decide.
Where the money's gonna go. It's like a reverse Berkshire halfway. Everyone has a say in capital allocation.
That's exactly what it is. It is the opposite of birth, I thought it would be.
To say the crypto community goes nuts for the this is like catnip for the crypto. People are
Jast.
So by the time the ICO closes in May twenty sixteen, remember this was originally for
A decentralized hardware Air Airbnb competitor.
They raise a hundred and fifty million dollars.
into they renamed the whole thing.
The Dow.
They are just the game. Great. That is what they are.
So great.
So so great.
150 million bucks.
That is more than most first time VC funds.
Oh yeah, the world. That is like a lot of money. That is like I think the biggest crowdfunding of all time.
I think the only seed funding that is larger than that for a single entity is probably like Quibi. Oh boy. Oh boy, the parallels.
That is more Fred Wilson and Union Square are gonna come into the story here in in just a minute.
A hundred and fifty million bucks into the Dow is more than USVs.
Entire
First fund.
And they're one of the most active venture capital investors in crypto at the time. This is a lot of freaking money.
It turns out though that there is a security flaw in Ethereum, and it's specifically
In in the
part of smart contract code where Dows
Like this one, like the Dow.
Operate.
Yeah, and to put a finer point on that.
There are a few programming languages, but there's one very popular programming language developed specifically for writing smart contracts called Solidity.
And Solidity, it's kinda like JavaScript. If you know how to write JavaScript, you can pretty quickly how to write solidity.
So
The Dow is basically a big pile of solidity smart contracts that all interact with each other.
But to your point.
In order to
run Solidity, there is code.
underneath in Ethereum's core software that needs to make sure that
When those Solidity smart contracts are running, they're doing what the programmers intended for them to do. It all exists on all the nodes in the Ethereum network. Some downsides to distributed systems here.
So right after the Down.
Finishes there.
I CO and gets this all this money in the bank, so to speak.
One of Solidity's core developers realizes that there's this bug
In solidity.
And the consequence of this bug
Is that
You could drain money. An attacker could come in and drain money.
out of a dow.
Ruh. Yep. So
In probably one of the biggest unforest areas of all time.
Day and the the foundation.
They're like, Okay, great, great, we're gonna update this, we're gonna update our clients, we're gonna post about it.
We're gonna let everybody know what's going on. We're gonna post like okay, so they do that, right?
But it's a distributed system. So like not everybody, not all the nodes in the network update
The client software that they're running on to Patch.
The whole.
And
Any time on the internet you're gonna have bad actors, especially in crypto land. Well a bunch of hackers are like, Oh shoot, here's a whole blog post about how to exploit
Dows and how to drain the funds and here's this Dow that has a hundred and fifty million bucks in it.
I'm gonna go start hacking on this thing.
So the initial
Exploit was actually
wouldn't have been discovered, we don't think, except for the fact that the Ethereum Foundation published about it.
Yeah. I mean it could have been independently discovered by other folks too, but yes, one of the core developers on Solidity
Found the bug. And then fixed the bug.
And then they published about the bug.
And everyone wasn't all fixed yet. They breathe this deep sigh of relief.
Yeah.
Huh.
Until
the balance in the Dow's account starts slowly going down. So this is the crazy thing. It's like, you know, this that's like the main plot point of The Last Jedi, you know, where it's like the slow motion
Cruiser.
Chase.
Throughout the whole movie where it's like they're just saying one it's like happening in slow mo. It's all just this is exactly what happens. So the way this exploit worked.
You could steal money.
But you could only steal it very slowly.
And you could do it in a way that like was unstoppable. You did yeah, you sort of dripped it out.
So for two weeks
Everybody is
Freaking the F out. Like Vitalik is losing his mind.
Everybody is losing their mind.
The doubt was so big.
That hundred and fifty million bucks was fourteen percent of
All ether.
in existence. Wow. With in the Dow. And it's getting robbed.
So
Vitalic calls on all exchanges like Coinbase, you know, Binance everybody to stop trading ETH.
Stop trading. Like literally pause everything.
This is amazing. A group of white hat hackers.
band together and they're they call themselves the Robin Hood group.
They're like we're gonna hack the Dow as well. We're gonna attack the Dow, but we're gonna do it We're gonna drain the funds into an account
that then we're gonna take that account and we're gonna give it back to all the people. So great this stuff up and figure out how to drain it faster than the black hat attacker. And the craziest thing, because we've talked about this a couple of times, but like the way that you can
get stuff to happen on the Ethereum network is by spending ETH by offering a reward to do it.
It's like the more they can bankroll their white hat efforts, the faster it will happen. And so they're out like
Raising money.
Yeah, they're asking anybody who they know who's a big ETH holder, a lot of the true like early true believers, like, Hey, send your ETH to our address so then we can drain the Dow faster.
And when they start doing this, they aren't even publishing about it yet. So they're kinda freaking out that like
Wait a minute.
We're actually just black hat hackers right now until we tell the world what we're doing and why and everyone realizes that like
we're doing this for the good of everyone. It's this crazy like um
You know that Spider Man GIF with all the pointing? Yes. This is like such a giant cluster.
So n unfortunately nothing works. So like the White Hat, the Robin Hood group, they're draining the Dow, but the black hats are also draining the Dow.
Everybody's freaking out.
The foundation in Vitalic decides, all right, we're gonna do a so what's called a soft fork.
of Ethereum.
Where we're gonna get all the nodes that are running Ethereum, all the all the miners.
Two
Update their software.
And
Basically stop. We know the addresses of the black hats.
We're gonna get them to stop processing transaction requests from the black hats.
We can do that by just like update the software, it's fine and then everything will continue on.
Cool, it's not great.
But it's not good.
It really makes you wonder how decentralized is this really. You're telling me that you're willing to modify the core code to just be like, Yeah, everyone except that address. We don't like those guys. Yeah. Exactly.
Well, so they're about to do this.
And then a group of researchers at Cornell led by
Professor Eamon Gunn Srier.
figures out
That if they were to
I don't know the technical details.
They would actually open up the network to like
Big distributed denial of service attacks.
So
You could do this, but like there's a like this is not gonna be good. So
They decide, all right, we're gonna call off the soft fork.
So that leaves only two options. One
Do nothing.
And the attackers steal fourteen percent of all the ETH out there. And they've already stolen one third of it. Like the black hat guys have fifty of the hundred and fifty already stolen. Yep, exactly.
Or option two is do what's called a hard fork.
and actually modify the underlying protocol itself.

Cut out.
the history. Like go back and modify the history of the blockchain. And that necessitates
Ending
the current Ethereum blockchain.
And wholesale starting over with a new one. Basically you're rewinding the tape before the attack started.
You're changing the code then. So you're sort of like undoing all the transactions. Everyone's like having the money.
Sort of like from
destination accounts back to source accounts. So like
All that gets undone and then the code
You know, the the bug gets patch and then we fork
And now we're just playing everything forward again from there. The future can unfold with this bug fixed, and none of those transactions happened. Yep.
So it actually you know, to a lot of folks listening, I think
Going with the hard fork and
Option number two might seem like the obvious, right.
Path here.
But this has a huge
Philosophical consequences, as as you're alluding to, Ben.
This is essentially a bailout.
That we're talking about here. It's like
It's just like two thousand eight.
We screwed up the consequences of our actions
Ended up
It's a bad places. Uh
Rather than taking responsibility and moving on, we're gonna have some Deus Makina.
a government like a a higherity is gonna come in and
reset things here. Right. And what they sort of proved is like
Geez, these
Ethereum Foundation people have a lot of power over this ecosystem. Like if they come out and Vitalik comes out and says, Okay, everyone, we want you to hard fork.
Then as long as fifty one percent of people hard fork, and really it's fifty one percent of the sort of mining capacity, so it's not that many players that need to you just get a few of the big guys together.
They hard fork.
That is the new source of truth. Yeah. And
Sure, technically the way that you look at the architecture is that it's decentralized, but like
If we were willing to wind back the clock and rewrite history, then we kind of
could always do that and in the future
We always
sort of will be able to do that again. And so really
You're betting the farm not on
you know, what you thought you were, which is like contract is code and this is immutable and unchangeable, but really in like
Well, if a few people
decide that the quote unquote right thing to do is to undo history, make the change, and then go forward from there. Then like they're any different than Jerome Powell deciding to, you know, parachute money in. Yep.
So
Vitalic is like again, this is this is a huge decision. He's really stressed. Finally, Eamon the
Computer science professor at Cornell sits down with him and he says
He says to Vitalik.
I'm gonna ask you a question.
This is a quote.
And I want you to answer truthfully.
I'm not gonna judge you, just be completely honest.
Are you serious about building the world computer?
Or are you trying to appeal to illegal money flows, drug dealers, illegal gamblers, and whatnot?
And Vitalik responds, No, that is not what this is about.
we wanna build the next generation of applications. Like I really believe in the world computer.
Anyone says okay.
Well
Immutability.
not doing the hard fork.
It's paramount.
If you want to appeal to this illegal money crowd.
If you don't
And you're serious about the world computer?
Then it's completely reasonable to do a fork.
And so that kinda convinces Vitalik.
So they do it. They do the hard work.
All the miners switch over. Literally people are popping champagne at the foundation and at Cornell. Uh it's all happening.
And then a couple hours later.
All of a sudden.
the old blockchain comes back to life.
Ha ha ha.
This is another dramatic moment where like
You're imagining them sort of watching the old chain on some monitor somewhere, and you're like, Wait a minute, they're adding new blocks to the old chain. How is this even possible?
It's like the end of Return of the Jedi when like the fireworks are going off and like everybody's having then like, you know, the first order though is like they're they're brewing. So what's going on there?
Well
So it's un it's unclear to me at least. I don't know if it's known
If anybody else knows or or or broadly.
Whether it was either on a mistake that some of the miners just like
Didn't get the message and update there. Kept mining the old chain. Or if it was on purpose, kind of a protest. Right. True believers. Or the attackers themselves who were like, Hell bit, I want my money. Right. Uh
So that old chain keeps going. It is still going to this day.
It is called Ethereum Classic.
You can buy
Ethereum classic tokens on Coinbase.
It has a four billion dollar market cap. It's the twenty second largest cryptocurrency by market cap.
Amazing.
Amazing.
Ethereum, of course, you know, the main thing. Uh quote unquote main chain.
You know, has a two hundred billion dollar market cap, as we were saying, so it's obviously
Yeah, more successful, but like
Yeah, this is crazy. Yeah, and and Ethereum Classic is in some ways Dogecoin like, where like

Trading it.
even though they know there is a fundamental flaw and it's
future development does not have any effort behind it to fix bugs and develop new features and it's not gonna
evolve the way that Ethereum's gonna evolve for the future.
So
They survive.
The Dow and
This becomes known in history. Like this is
One of the defining
Moments of
Ethereum.
And ironically, you know, look, there's Ethereum Classic right there, Steph, and everybody who really is into immutability and
Whether you want that for philosophical reasons or to do a legal stuff or like, you know, whatever you want that for, that exists.
But for the main Ethereum.
Blockchain.
Ironically, this kinda helps it.
'Cause they're like
What?
We're listening, we're gonna do the right thing.
We are a
system and a protocol that is in development.
We are evolving. There will be bugs.
There will be hacks.
When that happened this is not Bitcoin.
When that happens, we're gonna do the right thing and we're gonna fix it.
And you can understand why that's actually pretty appealing to a lot of folks. It demonstrates a pretty extreme amount of pragmatism.
It's very interesting how
this crypto community started as exclusively true believers. And then as it got more into the mainstream and as there's more money behind it and as it needs broader societal adoption.
The sort of
trappings of traditional society start to seep in a little bit.
And there is this sort of realization that
Geez, maybe safety nets are kinda good.
And maybe having someone at the helm who has good judgment
Also, maybe that's kinda good.
Yeah.
And the future of Ethereum, as much as Vitalik wants to sort of work his way out of it
For better or for worse.
There is a little bit of a benevolent dictatorship going on there between Vitalik the Foundation and the largest mining pools where
Ultimately we are putting our faith and trust in something.
Yeah.
And certainly
Hard to know what would have happened otherwise, but

They're not been a Vitalic.
I don't think the hard fork would have happened.
Only he
Just like
All the co founders put the gun in his hand to
Set up, you know, how the company was gonna be.
uh how the organization was gonna be.
Without somebody like that at the helm, like I there's a good chance this would have just devolved into chaos. Right. With Vitalic, so goes the community.
Yeah.
So that doesn't necessarily mean though that uh
Ethereum is uh out of the woods, shall we say. Or that all is, you know, sunshine and rainbows and kitties and unicorns. David, we did say at the beginning of the episode
This is the world computer and it's also the world's slowest computer. It is.
Maybe the world's slowest computer. And we should talk about also like
Your comment about the raspberry pie.
There's not any sort of more raspberry pies getting daisy chained to that thing as this is growing. So we're seeing
You know, the ICOs, we're seeing all these people spinning up Coinbase accounts during Covid. We're seeing I'm sure you're about to tell us about the boon of DeFi and DeFi summer, baby. It's still all happening on this little Raspberry Pi. It's still all happening on a Raspberry Pi. Yeah.
So
Scalability.
As more and more stuff.
Is happening on Ethereum.
The raspberry pie is like having a harder time keeping up.
And there has been in this explosion of stuff.
So
For a sense of scale.
right now
The Ethereum network processes
Somewhere on the order of call it like fifteen to forty five.
transactions per second.
So that's like the entire Ethereum world computer.
fifteen to forty five transactions per second happen on it. And those transactions could be anything. If you really want to abstract this, think about that as like
An actual transaction, like a wire transfer, or you know, th something about in software, like a tweet could be a transaction, like any sort of
movement of uh of bits from one place to another.
On the system. Yep.
For
Comparison purposes, the Visa Network
Can at peak
Load process about.
Fifty.
Thousand five zero thousand.
transactions per second. Ooh, centralization, baby. You can really scale with that. A lot more. Now in theory
Once
the final uh Serenity release of Ethereum.
Which
Together with a few other things is being called Ethereum two dot oh. Once that is live.
Yeah.
Theory.
the Ethereum network will be able to process up to a hundred thousand transactions a second. So like
Dang, that's like a it's like a pretty serious
Like a Tesla Roadster style upgrade. And you're probably scratching your head going, Wait, wait, wait, how's that possible? So let's
May maybe let's put a pin in that and now, but
It's coming.
Dot, dot, dot. And it's been coming for six years, but it's coming. It's it's coming. But right now, you know, it's it's it's not here.
So as
Network congestion.
Gets worse and worse.
the way gas fees, the amount that you have to pay to get the nodes to validate your transaction.
The price of that you have to pay the gas fees keep going.
Up. It's supply demand. It's effectively your CPU still has the same clock speed, but now there's a cajillion people that wanna do stuff on that CPU. Yeah. So it goes from like a de minimis amount in gas fees that you have to pay.
You know in twenty fifteen, twenty sixteen.
to I think in twenty seventeen it hits like maybe like thirteen dollars per
fee f equivalent of thirteen USD per transaction you have to pay
Then that dies down a little bit. And then at the
peak. It's like seventy bucks. At the peak, you know, in the last few months here is DeFi has just totally taken off. And DeFi involves lots of transactions. Decentralized finance. There there is no application that requires more transaction throughput than
High frequency trading, lending, all that stuff. Yep, it spikes up over seventy dollars just to execute one.
transaction.
So obviously this is a problem and you know
Vitalic and the Ethereum Foundation knows it's a problem, but progress is not happening super fast.
So there's this famous
Fred Wilson.
Quote.
Fred Wilson from USB.
One of the most prominent, you know, early
VC is investing in crypto, board member of Coinbase, plenty of other, you know, of of Dapper Labs, maker of crypto kitties, which we'll get into in a sec.
So he's
Doing a fireside chat.
That's on YouTube at Multicoin Capitals twenty eighteen.
Summit.
And he just
Goes off on Vitalic.
And Ethereum like literally goes off. He argues that they're incompetent, that they can't ship, that they're blowing the lead for the whole ecosystem.
Uh he says somebody needs to go over to Switzerland and fire those
Fers who don't know what they're doing.
Yeah.
Boom, he lays down the gauntlet.
And his rationale for that is like
Hey, at this point
It is a
Growth stage startup.
There are playbooks here to run. You know, uh he was on the board of Twitter. I remember reading Hatching Twitter and feeling like actually this Ethereum story is it feels similar to how Twitter came to be this band of renegades, sort of pseudo um anarchists.
What was the Twitter, we've been m making the comparison between Vitalic and and Zuck.
In this episode. Really there's also a comparison to Jack. Yeah, absolutely. Totally. And so
Much tumult happen at Twitter, but Fred witnessed here is how you take something that has unbelievable product market fan and is scaling like crazy and figure out how to put great management in place.
Oh man. So
Vitalik then responds, he goes on Larson's Unchained Podcast and is like
Yeah, I mean like you're a V C like you want them at like
No.
And it's debatable who's right here. But in the meantime, so
Developers need their they're building stuff.
That's really cool.
It's executing very slowly. Performance is such an issue on the network.
Other than
blockchains start popping up to compete. They're like, Well, hey, there's a problem.
Yeah.
There's it's a free market. Like
We'll start an Ethereum competitor.
So we've referenced Cardano from Charles uh Hoskinson. Unbelievable that that guy
was one of the co founders of Ethereum and then went on to start Cardato. Polka dot uh comes out from Gavin. Gavin Wood had
left the foundation and started working on This is the genius programmer to implement a Rust client, a Rust Ethereum client as part of Parity, I think is his company.
And was a great
contributor from parity into the Ethereum ecosystem for a long time.
But then they start Polka Dot, uh, which is a competing chain a little different, but competing chain there's
Eos which raises four point two
billion dollars in an ICO before that bubble bursts.
They end up getting sued by the SEC.
Uh, there's Binance's smart chain, there's lots and lots of folks out there.
By and large though, A, a lot of these projects still here in 2021 haven't even shipped. Uh so like you think Ethereum shifts slowly, like look at some of these other ones.
None of them get like real traction though, except maybe Solana, which we'll get into Solana in a little bit.
But meanwhile these transactions are exploding on the
Ethereum network.
We talked about, you know, what they are DeFi and and NFTs, let's get into it. So
NFTs.
I thought N F T the NFT boom kinda came
After DeFi.
No, I had forgotten about this.
N F T's.
Huh.

Exactly. Yeah so at the end of twenty seventeen.
The Ethereum Foundation hosted their first official Ethereum Foundation hackathon in
Toronto.
And
A Canadian startup incubator, uh start up incubator called Axiom Zen.
From Vancouver, they're like oh
We're looking at blockchain stuff.
We're gonna send our team over to Toronto. We're gonna participate in the hackathon. Totally. At the hackathon, they come up with this idea. They're like, look, they're these ERC twenty tokens
Which are used for
ICOs and creating your own currencies on top of Ethereum, those are commodity tokens. Every every token is just like every other token.
So they're fungible. They're fungible, yeah.
It's like American dollars. Like sure they have serial numbers, but like if I have twenty bucks and then I exchange that for a different twenty bucks, I still have twenty bucks. Still twenty bucks.
What if we
Create an implement a new
Token standard where every token is different.
Every token is unique and that's actually
The appeal. There we can make'em collectible.
We'll do things and like this is the internet, like let's make'em cats. The internet loves cats. And this is Ethereum. I mean tha that community is like a cats in Rainbows community. Oh my god, to say it's like catnip is
Da. Ayo.
Crypto Kitties. So literally I didn't figure I didn't know this. Crypto Kitties invented
The NFT. Yeah, I don't think I knew the phrase NFT. Like uh I actually came very close and really regret not buying crypto kitties in twenty seventeen.
I remember going through the website being like this is wild. I can't believe they're doing this. But yeah, I don't think NFTs entered the people didn't think about it as an NFT and it was just a crypto kit. Right. It's and and people thought, hey, we could do this for other things. In fact, I there was a uh a a friend and and another venture capitalist that was pitching me on this idea of
baseball cards, but on the blockchain, like crypto kitties for sports. And so people were thinking about like
Hey, we could take this idea and do it for other stuff. But there wasn't like a category name that was in the public consciousness. And of course, you know, many listeners will know.
Crypto Kitty's Axiom Zen.
Changed its name to Dapper Labs.
Amazing.
And they are the company behind MBA Top Shot now.
Amazing. So
Freaking cool.
So crypto kitties accounted for at its peak fifteen percent of all the transactions.
on the worldwide Ethereum network.
Crazy.
So yeah, that's N F T, and then of course that goes on to you know, people and the alien and everything going on.
Now, uh that people probably know about.
The other big set of applications though that are happening on Ethereum in the sort of
Post ICO.
Summer.

Is DeFi, so decentralized finance.
For people who aren't up on it yet, we're not gonna go super deep. We don't have time here, but like it is super freaking cool.
And basically the idea is like
The idea behind Bitcoin was
Yeah, we're gonna create a decentralized currency, a non fiat currency, we're gonna go outside the traditional
financial system to create money. Yep.
DeFi is like, Well, what if we take that a step further and we just go outside the traditional
financial system for every financial product.
It's something like
fifteen percent, ten percent, I can't remember exactly what it is, but a meaningful percent of the US GDP is the finance and financial services industry. So clearly like there's a lot of stuff that needs to happen.
Yeah.
Lot of instruments, a lot of different professionals to manage those things. All sorts of stuff. If we've got a new type of money and we've got
A new
set of rails that that money can move around in programmatic ways.
We need all those instruments in this ecosystem too.
And remember, what is Ethereum? You know, one big idea is the world of computer, the other big idea is it's code with money.
Oh shoot. Well you got code with money.
Now you don't need the code with institutions. The code's got the money.
Mind blown, David. Mind blown.
So DeFi, the first major DeFi project was actually Maker Dow. Yes, Dows are back.
Make a Dow launched the die
Stablecoin.
Uh which was a totally decentralized
Stablecoin, you didn't need to have a counterparty like with Tether on the other hand saying, like, Don't worry, I hold USD in some bank account somewhere like
Don't need that anymore.
Then at the end of twenty eighteen, Uniswap launches and Uniswap was like Liquidity pools, baby. Liquidity pools. Now suddenly you don't necessarily need a specific counterparty to trade with. There is a
Exactly what it sounds like, a pool of basically pairs of tokens from one to another. If you want to swap assets without somebody on the other side of the trade.
And there's a very
Very
A cute and real use case for this, which is like
Hey, I wanna buy
A coin.
Before Uniswap I would go to Coinbase, I would go to
FTX, I would go to some centralized exchange and I would do it. I would sell some Bitcoin and I'd buy some ether whatever, or I would like put money in.
And then I would pay a whole bunch of fees.
to that exchange.
Well, with Uniswap.
What do you just do this?
Decentralized, peer to peer. No centralized exchange, no fees.
Great. People love it.
In
June of twenty twenty another project.
A decentralized lending platform called Compound.
They go even further.
They
Sad.
participants on their system, which are lenders and borrowers.
If you participate in the system.
We're gonna give you
A new compound token.
We're gonna give you a utility token.
For a compound by participating in the system.
This kicks off.
A crease. This becomes known as yield farming and this kicks off Defy Summer and like
It is all up and to the right.
From
There.
Before this compound event.
At the start of twenty twenty there was about one billion US D worth of collateral that was in
DeFi.
By the end of the summer last year.
It was twelve billion dollars.
In May of twenty twenty one, last month, it hit a hundred billion dollars.
U S D equivalent.
Eath. Yeah.
So you can imagine the pressure that this is putting on the Raspberry Pi that is the Ethereum computer. Quite a constrained uh world computer at this point. Totally.
And uh for all these DeFi projects, each one has an associated token. I mean that that's kinda the crazy thing is they all work the way that Ethereum does, where there's a utility token that allows you to do stuff
On
that platform. And of course that platform is a sub platform that sits on top of of Ethereum.
in the same way that you could have like going way back to our earlier example.
Ethereum's the operating system, but like
somebody made a browser and then you could have web apps inside the browser. And so there's there's sort of these
It's an application with or platform within a platform within a platform type thing. But it is crazy that the computer scientist in you is getting excited. Absolutely.
Each one of these projects that has a purpose also has an associated utility token that you can trade that can do something.
inside of that project. It's just like
The
speed at which the complexity
of this thing is just growing, it's really hard to stay up on what is the the current frontier. And it's so exciting too. I mean like these are like real things that are happening.
You know, Bitcoin's a whole separate thing and
Like I think Bitcoin has a store of value. Like that makes
sense I think it's good idea but like
That's what it is.
Like all this stuff is how there's so much innovation happening and like new value being created in Ethereum. It's awesome.
So that brings us to
Today
At the start of twenty twenty, the price of ETH was a hundred and forty bucks a token.
Last month in May of twenty twenty one, that had skyrocketed up to over four thousand dollars.
A token and then as you referenced at the top of the show, about a four hundred and fifty billion
Dollar market cap for ET.
that has since come down by a factor of about two. It's a it is right around two thousand dollars token right now.
And right around two hundred and twenty.
billion dollar.
Market cap.
Not bad for a raspberry pie. In December of twenty twenty
The Ethereum Foundation did finally launch
Phase zero.
of the Ethereum two dot O upgrade.
Which started the beacon chain to start the process of moving to proof of stake.
But sharding, which we haven't really gotten into, but that's the real scaling. Listeners, we'll get into Ethereum two and sharding here in analysis,'cause that's the that is the conversation that we want to have around what does the future of Ethereum look like and how should we think about this thing going forward, but let's pause on that for the moment. Yep. So
Yeah.
Here we are.
It's kind of amazing.
All right listeners.
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So as we get into analysis.
Man, I was so freaking pumped for this episode.
And it's doing all the research, all the crazy stories, all the history.
The one thing I didn't have time
to do was I meant to go back and reread
all the great pieces that Packy has done. Oh my gosh.
the whole Ethereum ecosystem on web three, on all the applications on DeFi, especially his great piece he just did on Ethereum. Uh zero knowledge proofs. It would really help with
Analysis if I had done that.
Yeah, well, you are in luck, uh, and I just heard the doo doo of joining our Zoom call here.
Uh is that Packie McCormick I see on Zoom?
Hello, Acquired. What's up, Ben and David? How are you?
What is up? Great to have you, man. I am so honored to be here for the last episode of the season.
I was wondering why Zoom was open on my computer this whole time. I'm like David's here in person. This doesn't even make any sense. I hope he joins at some point.
Well, I'm here now. This is gonna be so fun, a topic that is near and dear to my heart and a podcast that is near and dear to my heart, so
This is we're like the Super Bowl halftime show of podcasts. Like you know, you thought it was just Ben and David, but like
Boom, there's Beyonce.
Hmm.
Hm. Well, Pack, the first
sort of analysis section we want to do here is uh the the bull case and the bear case for Ethereum.
And because
You're Mr uh Unicorns and Rainbows and Bubbles and Sunshine and and the Optimist,
I would love for you to lay out like
What is the bull case for Ethereum from here? Like what why why is it gonna beat all the challengers? And we haven't even really talked about some of the challengers yet. You know, how is Eth two gonna go well? What the heck is Eth two? So I don't know where you wanna start, but
I think you painting the bull case would be
Just perfect. Fantastic. So when I wrote uh my piece called Own the Internet on Ethereum, I think
E is around twenty four hundred. So I'm about four hundred dollars more bullish now than I was then. But
I think the ball case.
ends up being pretty simple and something and I think this is maybe a metatheme for kind of
all of crypto for it to work, it kind of has to have analogies to traditional business.
And I think the bull case here is
More demand.
And less supply.
you know, you can boil it down to that. So I know you've talked about some of the use cases. We've talked about
DeFi, we've talked about NFTs, maybe touched a little bit on Dows.
There's all this stuff being built.
I'm talking to so many people who are building things on top of Ethereum right now, who are not in the least bit perturbed by the price. I think that
you know, high value art sales will continue to happen, but there's gonna be this long tail of NFT
kind of content that is created on the internet where there's just ownable files.
I think
There's a
explosion happening uh in in the Dow space right now Petrelli just wrote a great piece today kind of laying out the whole landscape so crazy the Dows are back after Dows are back the worst thing they almost broke Ethereum.
And they are and they're very, very back. I mean, there's so many interesting projects being
Bill there's a company called
syndicate protocol right now that is essentially rebuilding investing infrastructure.
on the blockchain. And like there's all of these projects being built by people, some of whom are crypto native, some of whom are coming from kind of traditional web to traditional internet.
that are building on top of the blockchain.
The fun thing about
E
Is that you know, I I kinda view it like
You know, Ethereum is AWS. If you had to use Amazon stock.
To use AWS. So you had to buy Amazon stock to use AWS. And then when you used AWS,
They actually did a share buyback. And
Ate up some of those shares.
And when you say supply demand, you're talking about ETH the token or Ethereum the network or both? Both.
the way that it works is to do
nearly anything that you'd want to do on top of the Ethereum blockchain.
essentially need to start with ETH, which you pay transaction fees in the form of gas fees
So you need to buy the thing, create demand, and you need to spend that thing on top of the blockchain. And you might buy other tokens that you use in certain projects, but you're buying them with these and you're still paying gas fees.
For the most part.
Right now what happens is
With kind of
E one.
Or you know, Ethereum.
We are in uh proof of work world.
Just like
Bitcoin.
Where
People are solving math problems on their computers.
And they're getting rewarded in ETH to do that.
And then they're having to sell a lot of that ETH to go pay for
The computers themselves, the electricity to pay their taxes that they're making off of this. And so
All these eat are being minted and then just kind of like
kicked out of the system so there's big kind of cell pressure on.
What's happening with
EIP one five five nine, which was a proposal that is approved and is about to be implemented.
Uh, what's happening with the IP one four five nine is that gas fees are splitting.
Into
A base fee and a tip.
Uh where the tip is
You know, there's a bunch of transactions in any given block and you can pay more to be further in the block. So that's
One thing.
The other piece of it, which is a huge change.
Is it the base V is being
Burn. So instead of going to the miners and being sold to be cash to be whatever, that's just being wiped out. So it's effectively deflationary.
Or potentially deflationary,'cause you're basically saying the amount of ETH that exists in the world, of course mining will continue, so the people will sort of continue creating more ETH, but now there's a way for it to be destroyed also in
the base fee basically getting burned.
Exactly. So the more
things that are happening. There's more demand for the currency itself.
And then as more of those things happen.
more of the currency is burned off. So it's potentially deflationary. So there's this meme that goes around in the Ethereum community.
That if Bitcoin is sound money because it has a cap supply
Then
Ethereum or ETH is ultrasound money because it has a decreasing supply. And so if you've seen the bat and the speaker on Twitter.
That is the ultrasound money meme. And so that's that's the one part of it.
Other thing that's happening.
is the switch to ETH two.
Which will change it from being a proof of work consensus mechanism.
to a proof of stake consensus mechanism. Actually one thing but before we get into proof of stake versus proof of work.
I hadn't thought about I I knew what you were just saying about
the deflationary aspects, but
Am I right that this will also remove a huge amount of selling pressure, as you were saying?
Not only is it gonna be deflationary, but you have now all of a sudden all of these essentially sell orders that were coming in from
Miners that are now gonna not
Come in, right? Exactly right. And so the inverse of less cell pressure is essentially more
More bypress. It's more bypressure, right? And so it's essentially like all of the stuff that was being sold to pay for computers and electricity and all this stuff.
Off chain.
is now essentially being bought.
Assuming everything goes well.
Always a big assumption with Ethereum. Always a big assumption. And that that that is a whole nother thing, I think
E IP one five five nine less of a huge assumption.
ETH two is the very big assumption. We're probably well like six months out from ETH two.
Alright, a straw pole amongst the three of us.
First to happen.
Eath two.
Or full self driving Tesla.
Yeah.
ETH two, but not by much. I'll I'll go with ETH two, too. I'm I'm also gonna go with ETH two, but I think it's it's interesting, right? And that like all these things that seem
Like technological challenges are also kind of human challenges.
Just like Tesla, everyone's like, Oh, you know, the tech is there, but it's the regulation.
I think same here.
There's a bunch of people who are
ETH miners who are bummed that, you know, they've bought these rigs and they have their whole thing set up and they're no longer gonna be running these proof of work things and and making ETH for doing so. And so that that I think is the opposing camp to ETH too.
is the miners who've been making all this money off of proof of work.
But if it does switch to proof of stake, which it seems like it will
The big thing that happens there is that instead of
spending a lot of electricity to solve really hard math problems and and you know maybe hurting the environment, maybe not, depending on if you use renewables, all of that.
What happens is you put up
Whatever amount of ETH, I think to do it directly on chain, you need to hold thirty-two ETH and put them up or stake them.
And you essentially vote, yes, this is a good transaction, we can allow this. No, this is a bad transaction, we won't allow this.
And you earn ETH, and that's where you get your yield from staking your ETH.
if you're voting in the right way, but if you contradict yourself or if it's proven that you've voted in a way that's bad for Ethereum, then you lose your stake. And so you're staking the stuff to vote.
But what it also means is that the yield for staking
means that all of a sudden instead of just being kicked out of the system
The value that is being created on top of Ethereum actually starts accruing to ETH holders. And so that's like the really big thing where
It's always been this disconnect in my mind where the question that I would always ask people is like, Great, so people use Ethereum.
What happens? Like how does value accrue to Eve?
And proof of stake is how value occurs to Eve, because you need Eve.
To stay to
Secure the network.
And then for doing that.
As a holder, the value accrues. Yeah, it essentially makes it a cash flowing asset. It makes it a cash flowing asset.
Okay, so let me like uh to identify what proof of stake is, let me throw out the question that everybody has to have in their mind at this point. So proof of work, you get rewarded with a
token in order for spending money on energy to do some hard math problems.
Proof of stake.
Makes it seem like
Okay, well now just the people
who have
the existing E
Are the people who get to vote whether something's legitimate or not. So it almost feels like I we're shifting the power from labor from the computers doing the work to mine to the power going to capital. Whoever currently has the most ETH and is willing to risk it to say, Yep, I'm staking my ETH on the line here to say that.
This is the most
you know, legitimate transaction and and you can take it away from me if it's proven later that it's not a legitimate transaction. Is that the right way to think about it?
I think Bitcoin
fans, Maxilist, whatever you want to call them, Bitcoin people.
would say that a proof of work is a much more
democratized, open, fair way to do it because anyone with a computer in the world is able to become a miner.
And Ethereum
you need to own a certain amount. And so it's thirty two ETH. That's a
meaningful amount of money that's sixty four thousand dollars at today's prices.
You can also s stake smaller amounts if you do it through, you know, Coinbase and a bunch of other projects where you're able to stake ETH in smaller amounts and then they'll pull them and stake for you. So it's not like you have to be the richest person in the world.
The fear in all of this is
If somebody gets fifty one percent of the
E in circulation, then they can just take over the network.
They win
The whole thing is done, they take everything.
But there's always a fifty one percent.
Issue with any of these decentralized networks. There's a fifty one percent issue with any one of these for sure. We should say this actually was uh I was gonna bring this up later, but it's worth calling out now. If you look at the pie chart of current miners of Ethereum, Ethermine, F two, Pool Two, and Nano Pool combined own like
something close to sixty percent. So it's only those three mining pools that could
hard fork if they wanted to. But of course it's not in their incentive to do it because then people wouldn't trust
The system their holdings like they they want ETH to continue to get more valuable.
Which is the other really kind of interesting, I think, piece of a bull case for
Ethereum and
Yeah, I guess for Ethereum more than more than Bitcoin is that
It's in the interest of anybody building on top of Ethereum for ETH to be more valuable because the more valuable that ETH is,
The more secure the network is.
So there's all these different ways I think where the value can accrue.
Yeah, so in in some ways, like the bulk case there would be that it's so geographically distributed that like you you can't turn
Ethereum off. You could crash the value, but
there's no way it's gonna go down completely. So it's like it's censorship resistant, but it's not collusion resistant.
Like if those three parties colluded to do something, they could.
But there would still be a lot of other people out there running Eth nodes and it's in everybody's interest
running Ethereum nodes and it's in everybody's interest to
make that network as robust as possible such that if any single set of actors does something bad, then there still exists a large
Network. And to
buy up enough or for those pools to continue to
own enough or for any outside party to come in and buy up enough.
to influence anything and and to do a fifty one percent attack. Yeah,'cause in proof of stake, it's not about the miners anymore. It's about
How much ETH itself you hold, right?
Exactly. And so if Eth is all of a sudden
ten thousand and the market cap goes up to a trillion dollars, then
It costs five hundred and ten billion dollars to run that attack. If it goes up to twenty, it costs a trillion dollars to run that attack.
So the more valuable it is, the more secure the network becomes, which I think
Probably is why
Ethereum.
Yeah, I think just
the the lindiness uh
Ethereum and the fact that it's been around. Explain Lindy. Okay. So Lindy is this concept that
The longer something has been around, the
the longer it's likely to be around. So if something's only been around for a day.
then the chances are probably in another day it's gonna be gone. Like this could be a buzzy social app, this could be whatever else.
If it's Plato and people have been referencing Plato for millennia, then chan people are going to be referencing Plato for millennia in the future. And there's a bunch of reasons that that happens.
Uh, one is, you know, quality, I think rises to the top over time. There become these network effects where people start teaching philosophy courses and using Play Doh and all of that.
And I think with
A blockchain it's
network effects and Lindy a little bit on steroids, where there's also this financial piece kind of tied into the Lindy.
And it's attracting money and attracting. It's like you own Plato coin.
In addition to teaching Plato. Exactly right.
Exactly right.
And so okay, we talked about EIP one five five nine, which you've now said enough times that I actually know the number, which is about
changing the way that gas fees work and changing the way that mining works.
and potentially will make ETH deflationary.
So now
We talked about switching to proof of stake.
Pack, do you have a good handle on what the proposal is for these side chains that are proof of stake to interact with like
the one main core Ethereum blockchain.
We're getting into sharding.
And so
Right now.
There is
A single chain.
It's one of the reasons that there's all of this congestion is'cause
Everything that you're trying to do is fitting a block.
Each single transaction.
into the main chain and that's
It and so of course there's gonna be congestion, particularly when DeFi was exploding and NFTs were exploding.
gas fees were high because people were bidding to get in and
So it was it was just
Insanely expensive to use Ethereum and the network was congested.
with sharding, what happens is that these transactions
Kind of get batched.
Off.
The main chain.
in any number of like maybe sixty four shards.
and then come back down to the main chain as one transaction. So instead of
sixty four separate things happening.
It happens one time.
And comes back down to the main chain as one transaction, which decreases congestion.
Yeah, let's introduce the scalability trilemma. So this was an interesting concept that was proposed by uh Vitalik, where he basically said, look, there are three sides of the triangle.
You've got decentralization, which we hold dear.
Uh, there's security, which we also hold dear, and then there's scalability, or you could think of that as like bandwidth. And David and I talked about, you know, you can get f 15 plus transactions a second, but it's certainly not five thousand transactions a second. Like it's not gonna scale to a lot of transactions. And so the proposal for these side chains is interesting because
You're basically saying
Hm.
we're gonna punt a little bit on either security or decentralization in order to get that scalability. So for like little ticky tack transactions that you don't want to pay huge fees for, but also
If they don't matter as much, if like there's a lie in it somewhere.
or there's an attack on it and it's like not that big a deal, it's kind of fine for that not to happen on the main Ethereum blockchain. It's almost like
Not all laws are the Ten Commandments. Like things can be treated with different weights. And so for those things
Maybe it's okay to have these side chains that
Sure, we're gonna punt a little bit on the the decentralization, or sure we're gonna punt a little bit on security, but it's gonna enable a lot of these ticky tack transactions to happen in a way that actually makes the whole system kind of work better.
So that said
There exist things like Solana that are uh
Ethereum like in the fact that they are
global scale computers.
But
they make different trade offs.
in that trilemma and definitely get a lot more scalability, but perhaps don't have the same level of hardcore security and and decentralization as Ethereum.
The only thing that I would add to that is
Th there's this concept of the execution layer and the settlement layer. And right now with Ethereum, those two things are all bundled into one. So
It's like having
All of the trades happen in real time on the New York Stock Exchange, and then all the settlement and the bank accounts and the money trading hands at the end of the day.
Also happen in that same spot.
sharding on Ethereum or things like Solana.
Could be where a lot of the execution happens, but because
Ethereum is the most secure and more decentralized potentially than the other ones.
A lot of the settlement
will still happen on Ethereum.
even if a lot of the activity happens in a bunch of different places. Yeah. The analogy I've been thinking about with this with Solana.
They're the most interesting
competing other chain.
With Ethereum.
And I kinda think about it like
Yeah, like lots of organizations use AWS and they use Snowflake.
And like that makes sense, you know? Like it's not like you're only gonna use one or the other.
Just to put up fine point, because you brought up the execution layer and settlement layer, it's worth making the analogy to the current financial system where, you know, we've got a very low bandwidth connection between banks that doesn't need a lot of transactions. You've got Fedwire.
That needs to be bulletproof, but how many per day really need to execute? Like not that many.
But like credit card transactions, like, yeah, we need like tens of thousands per second around the world,'cause like a lot of people are doing that. And
There's gonna be some issues. There's gonna be some fraud. There's gonna need to be some reversals. We need to build all sorts of other mechanisms, but like
Do all of those need to happen on Fedwire?
No, no they don't.
So to
Put the bow on the bullcase.
Is it fair to say this is the next internet?
Web three is the next breakthrough paradigm shift for technology, the way that the internet was.
It will power trillions of dollars of new economic activity the same way the internet did.
And importantly, this is part of the ballcase, Ethereum
will be the base layer upon which it all happens.
That is a good summary of the bullcase. Yes.
Ben's been reading Packie's pieces. Okay, so then let's go to
Bear.
I mean the very first one here that I I think we've all been alluding to is like
either ETH2's switch over doesn't happen and they blow their lead and the corresponding network effect because it's technically difficult and also difficult to get the community on board, or that it goes poorly and in trying to make the system work faster, they actually kill the golden goose of this existing
bulletproof ish, but slow system.
Like that to me feels like the big bear in the room. Does that seem right?
That seems right. And I think
You know, again if you talk to
Solana or
Some other
single chain, single shard.
Protocols.
I think what they might say is that
because you're switching over to sharding.
This beautiful thing that we haven't really discussed, but is one of the reasons that people like building on top of Ethereum and like building a web three in general, which is composability.
Or people call it money Legos or Media Legos, where you can have all these things that snap together and work together instantly.
These are like smart contracts that exist at different addresses on chain that you can sort of daisy chain together. Exactly. So it's like a bunch of open source projects that fit together really nicely that anybody can just kind of take off the shelf.
And so the there's a bunch of those daisy chains that happen that if they're not on the same chain.
And they're shouting.
Then there's
Speed lost in that
kind of moving down from the shards to the main chain, they kind of just break composability for certain use cases. And it's like
Maybe there's enough things that somebody else can come in and say, Like, look, we can do
All of the things that
Ethereum can do and we're
single shard and
We're faster and X, Y, and Z.
And so maybe there's enough there to
kind of provide the activation energy needed to move over to another chain.
Right. It's sort of like uh to bring it to the web two world. Like I great I built this great application, it calls these three other APIs, and you know, I send data into this API, it send data out, which then calls this other AP. It's beautiful.
Uh actually though, between these two, there's actually a phone call that needs to get made.
Right, and it's happening much faster and all of that, but I think that's a really good analogy, yeah.
Yeah, I mean i they do have this huge lead, but
The threaded a needle the first time by
creating Ethereum at all. Like the concept of a Turing complete
globally distributed computer upon which other
Not only applications, but platforms for applications could be built.
Like that's a rabbit out of a hat. That's threading the needle. And they kinda need to do it again in order to make this shift to a scalable future.
In doing the research for me, it seems like there's also like a
People like like Fred Wilson, like
I just kinda fed up with how slow it's moving, right? Like
We've known that scalability is a problem for a long time.
We still don't know when it's gonna get fixed.
And I guess is like
There are risk that despite all these
Benefits.
To Ethereum like it's like
You're gonna reach a
certain point in the equilibrium where
Gas fees are too high, and it's just too much of a pain for developers where they're like, All right, fine.
I'm out.
I don't know. What do you think, Packie?
I think that's certainly a possibility depending on
How slow it moves.
There are already some things like
Audious project, which is a distributed kind of music player, which
Is building on
Both.
And it
And it s also settles on Ethereum.
Both Solana and Ethereum. Both Solana and Ethereum and then like
for really fast things like
likes or upvotes on certain things. They're just these really quick transactions.
That's all happening on Solana.
And then it's coming down and settling on Ethereum and all of that, but
There is this idea that different pieces are being picked off.
But
There's also this thing where if there are enough good
Blockchains like Solana that can interoperate with Ethereum, but that
certainly lower gas fees and lower congestion.
And if there are enough side chains that
Gas fees just get so low.
that even if a bunch of people use this thing, maybe the take is just so low.
That
not enough value is accruing to the holders of the token of Ethereum. Of Ethereum
That's the bear case for ETH is that this thing becomes so rarely used.
that those tokens don't become super valuable.
Potentially, right? The the transaction, you know, even if everybody in the world
used the credit cards, but interchange dropped to point oh oh oh one percent.
Visa and MasterCard.
become a lot less valuable.
Uh and so maybe there's something at play.
There.
There may be a very good response to that critique.
But that's one that's just kind of in the back of my head a little bit is
What happens if everything gets
so decongested and gas fees drop so much.
That
there's actually not that much money to be made, even if this is something that a lot of people are ultimately settling back on.
And it's interesting. Your your comment there on the credit card companies, it would both uh because ETH's value is derived
From
the supply demand match.
It's actually
uh worse quote unquote business on
Two axes.
It'd be that smaller percentage spiff.
And there would be way fewer transactions happening.
So it's sort of like a exponential problem for them.
If a lot of
the demand for transactions.
On
The Ethereum blockchain.
shifted to other blockchains.
I think that's right.
At least four ETH holders.
I think that's right, yes.
Everything is a double edged sword, right? I mean that its strength is also its potential downfall.
Well, I think that covers it for sort of high level
Bull and bear. And I think in playbook here we we may discover some more, but do you want to shift to power?
Yeah.
Let's do it.
This is interesting. I guess we did seven powers for Bitcoin.
It's a whole new world in
Like protocol level power.
Yeah.
First I kinda wanna wrap my head around what's the power of HTTP. And and
You you raise the right point that like Bitcoin is kind of simple.
It is complex and clever.
in the combination of genius insights to create the system that worked beautifully together, but Ethereum
it's actually quite difficult to wrap your whole head around it the way you can wrap your whole head around Bitcoin because it exists in all these different layers.
So maybe as we're doing
Power.
we should define it a a little bit tighter and say the Ethereum network.
Uh rather than trying to say the asset of the tokens. I like that.
I like that.
Okay, so for folks who are new to the show, the options here
Coming from Hamilton Helmer's seven powers are counter positioning, scale economies, switching costs, network economies, process power.
branding and cornered resource.
And
normally the way this is kind of defined is
what enables a business to achieve persistent deferential returns above their nearest competitor, sort of how to be more profitable than their closest competitor. Of course, this is a foundation and of course this is a big open source community. So it's interesting, how would we define
the persistent differential returns of the Ethereum network so that we even have some criteria.
to to figure out the power.
I think that's easy. I think that's the value of Ether.
Does it all does it all keep coming back to that? Actually, it's the market cap of Ether. Yeah.
It's the total.
combined value of all the ether in the world.
So yeah, what I mean, gosh, I'm tempted to say like
Ethereum has every single one of these powers.
Wow, David's got laser eyes over there in the corner.
To me
I think
network effects are
For any
Blockchain.
The
Number one.
thing that any of them have. And and this one actually works in a couple of ways.
One, there's kind of the concept that we talked about that
Everything gets more secure the more people who are using it and the higher
Price the
Heath is
And then I think even on top of that, all the things that are being built on top of Ethereum, I think really benefit from it, where
the holders of a token of a certain project are more likely to stick around. So it
I think that's the potential power of businesses built on top of Ethereum, is that they're incentivizing users to
get more of their friends to use the thing that they're using because their token gets more valuable as they do it.
And so
Those things have their own really strong network effects, I think, that then I think benefit back down to Ethereum. Yeah, it's multi layered. It's multi layered.
You're right. It's interesting. I'm trying I keep trying to come up with a good like non crypto analogy, because I think like the Mac OS one that I threw out earlier where like Ethereum is kind of the operating system upon which you can build platforms and applications.
that that felt right, but there is also this element where it's also like being a shareholder in Apple as well as as Mac OS. Well this is where I think there's counter positioning too, right? Like if you view AWS
And
the like.
As
Competitors to
The Ethereum network.
Like there's no way that Amazon, even in a post Jeff Bezos world, is gonna be like
Yeah, cool. When you use AWS, you get paid in Amazon stock. Like Right. Right. Yeah. No, it's like, uh no, we want to capture that upside. Yeah. Like that that's our leverage.
Oh, there's massive switching costs.
I mean, if you're gonna go write something for Solana, you don't write in Solidity. So like any of these applications that have already begun development or are already developed for Ethereum.
There are
some other systems that are compatible with the they call them EVM compatible with the Ethereum virtual machine. Basically the globally distributed computer that is Ethereum. You can with minor tweaks
port those over to
non Ethereum blockchains.
But like
For ones that are dramatically different and better in a lot of ways, like Solana.
It's gonna be hard to get the developer community to
Really
shift at this point. It's not that Ethereum has a
thirty year lead, but they have like a four, five year lead with the developer community that is non trivial.
I think there's another element of switching cost too, which is
For
Participants in the crypto economy.
Either.
Is the coin trading pair.
Doors and Bitcoin too, but probably Ether more than uh Bitcoin.
For
Other coins and other obviously like you want to buy an N F T, you're buying that with Ethereum.
You're not buying that width.
Solana tokens. Or you want to buy Solana tokens, like you're probably buying that with Ethereum, or you want to trade on Uniswap, like
I think Ether is the number one
Trading pair on Uniswap.
And then there's another level which is
That if you're
Accuring tokens for participating in something that's built on top of Ethereum, those are ERC twenty tokens. And so maybe there's some mechanism where
you sell, you convert to something else, and then you get a new token if the project switched to another another chain, but
seems incredibly complicated, if not possible, to pull that off. And so I think just the fact that all these tokens are ERC twenty tokens.
Is the switching cost as well.
Yeah, the the thing that springs to mind is on the Bitcoin episode we were talking about how entrenched the US dollar is versus Bitcoin, because the government both
settles its debts and collects taxes in USD.
And there're so many things that plug into the Ethereum network at this point that
it's sort of the same effect where if you're participating in a lot of these different projects, you're gonna end up with ETH.
one way or another, and then it's it's work for you and it's transaction cost for you to move that to a different blockchain.
Alright.
What's next?
Let's keep going here.
Uh so there's some that it doesn't have. Like what's the cornered resource?
I don't think it really has that.
Vitalic, maybe? Although people aren't exactly cornered resources.
But maybe I don't think there's any other single person
W
Is as much the face of crypto as
Metallic.
And it's
A liquid asset, so this is not exactly right, but there's something about
ETH holders or at least serious ETH holders or people we've held for a long time.
that are effectively cornered resources, like people who just
aren't going to sell and who are incentivized for ETH to to become more value. The hodlers. The ETH Hodlers.
Uh, maybe not as boisterous or or passionate maybe as the the bitcoin. I can buy that. I can buy that. I think there's something there where
I mean at some point you have to pay a bunch of taxes if you if you sell your ETH. So maybe that's the coordinate resource. There's a bunch of people who don't want to pay a lot of taxes.
Latent capital gains.
What about I I think there's probably scale economies. Definitely scale economies.
The
currently the the mining network and then in a proof of stake world the the just number of etholders out there who are staking.
That's true. There's also I mean
You could argue that there's been
Negative scale economy is
As well.
Where you know gas views got
Prohibitively high because too many people were using the network. I mean maybe it's
negative network effects as well, but too many people using the network degrades the experience and all of that. So
Maybe those are things that if you assume
Yeah, IP one five five nine and e two go through smoothly.
become powers, but in the short term
That's a great point.
Yeah, we've been to Sunshine and Rainbows over here on that point. Yeah, the Ethereum as a network
got less utility in several ways as it got bigger. Yeah, for sure.
And like that is
the opposite of what happens in a WhatsApp or a Facebook or any of these like true
Network effect businesses.
Or uh d just to stay on scale economies, it's also the opposite of what's true in like a Netflix, where you have that pure play scale economies where the bigger it got, the more cost effective it got for them to do things like license content. The bigger doesn't harder show up here at all.
Okay. Maybe maybe not then.
The bigger it gets, the more secure it gets and the more people are
willing to build on top of it.
But then there's also certainly the dischanties of scale.
Up to this point. Yeah.
So continuing down the things that it's probably not I don't think there's really process power.
There are a lot of people who contribute to this thing.
uh you know, it's a big open source project.
But I don't think that gives it.
power, I think in large part that has held it back.
Yeah, I mean if any well f Fred Wilson would say it's held it back.
Yeah.
And so much of the value
actually happened when there wasn't a lot of process to it at all, when it was the sort of founders and and sort of early folks contributing to it.
That
kinda created the initial system.
Yeah.
All right.
We haven't talked about branding yet. It's the last one. How do you guys feel about that?
Yes.
It has branding power. The the way this would classically be defined is
That's I'm gonna pay more for this diamond because it's from Tiffany's. And I don't think this has that.
Uh
I would say maybe that's it's
Other than network effects, maybe it's it's
biggest power. Like all right, let's go. So Vitalik wrote a post that I that I reference in the piece too on
legitimacy and how like one of the main reasons that different things in crypto have
value is because they have legitimacy. And so you can get legitimacy in a whole bunch of ways, but because Ethereum's been around long a long time and performed well in the past and all of these things, it keeps accruing
Legitimacy. And so
You could build and people have built.
forks of Ethereum. There's Ethereum classic out there right now. Classic the same thing.
But it doesn't have the brand power associated with and so the yeah it all kind of ties in together where
There are network effects because people moved over and so it makes sense because other people are moving over and it's like
There's a bunch of things jumbled into one, but I think the existence of an Ethereum classic or an existence of a bunch of other chains that technically are the exact same as something like Ethereum, but
their coins are nowhere near as valuable
I think to me that's kind of bread power. That ties into the Lindy thing we were talking about before. Yeah, that's a really good point.
'Cause it's funny how the psychology of
Would I go put five thousand dollars
Again, not investment advice.
into Ethereum feels like
Uh maybe.
Like it's probably not gonna go to zero.
But when I put five thousand dollars into a brand new coin that someone told me is doing something technically interesting, but I've never heard of, I might be like, Hm, how about five hundred?
Yeah.
There there's there's definitely some kind of like test the waters thing.
And it's funny that it's actually more around how much would I be willing to invest, not how much would I be willing to pay.
But there is a brand
power that accrues to it from a trust perspective.
to even though it is a very
Very volatile asset.
give me some amount of trust that
It's here to stay.
I I buy it. I mean Pack, you're spot on with the ETH classic argument.
We appreciate you joining our liquid super team to bring us this great insight. It has been an honor to be on your liquid super team.

There is something that's sort of been ruminating and I know we already did Baron Bull, but like
There's gotta be a bear case on all of crypto that's like the
bear king here that that we're not talking about. I mean that there's a variety of things that are pseudo black swanny like quantum computing or like, you know, someone figures out how to crack RSA effectively.
Or there's let's put those black swan type things aside. I mean
Where is there a perma burst on the entire crypto bubble?
I think they're still
A lot of things
That
Are happening on web three, or happening on Ethereum.
Because it's early and cool.
And they have no impact on the real
World?
And so one kind of big

Bubble burst case.
It's just that it doesn't find
Applications where it's
That much more
Useful.
And useful enough to be worth kind of the extra complexity.
That's not my belief, but I think that's maybe one of them is it just doesn't find the application still. I think that's been de risked over the past few years.
Another one is everything is still so tied to the price of Bitcoin.
And
Bitcoin is
You know, it's blessing in this car. I don't think there's anything fake about it just because it is kind of built on human belief and the fact that other people will accept Bitcoin.
But
If people decide for whatever reason, you know, it it
has tanked a bunch recently. If people decide for whatever reason
Or governments start to crack down and it's just not worth the headache.
Then if Bitcoin goes down
At least temporarily.
Everything is gonna
Absolutely crash. It's been wild to watch just these last couple of months, like as Bitcoin has swung around.
Either has slung around. Solana tokens have swung around and it's like nobody realizes these things are completely
Not connected. But they are, which is your point.
That one's that one's a big one to me. Just even the fact that they trade together, I think is a big one to me, let alone what happens if Bitcoin
uh if Bitcoin drops. Like the fact that they're not being priced independently yet.
is either a phenomenal opportunity
Or it's something to be worried about.
Is there how do how do we feel about
The
state actor government risk. Not necessarily, I mean, in terms of like
Oh, a government uh state actor's gonna do a fifty one percent and like destroy these things, but more like
Like what we're starting to see with China of like
Hey, no, we're gonna make it illegal to do this.
We're gonna try and
prevent our citizens from participating in
Either Bitcoin or or
In the whole decentralized ecosystem and Ethereum.
I think Uber is a good analogy, actually.
Uh where
It's this race between what governments decide to do and how much people really want to use this thing.
Uh and so if it can get to
a point where there's a ton of utility and it enables cross border payments and people who are in
hyperinflationary markets need cryptocurrency as a stable thing to keep their money in. If those use cases
Accelerate.
past the point of what kind of governments can control and there's a ground swell.
Then that's awesome. And the Uber case is is that they would go into town, they'd break all the rules, but customers loved Uber so much that they could
fight the local governments and win because they had all the constituents on their side.
And so I think that's probably the race that plays out is
Can
crypto find enough use cases and provide enough real value to it, enough people that if the governments tried to crack down, it would cause an uproar.
Right. Cause right now that cross border payments thing is real, you know, in countries that are having uh monetary crises.
But in terms of like actual real use cases
Most of them, while there are very cool things like Audio out there, most of them are for true believers. And so to your point of like, if a government bans it,
there has to be enough of the citizenry who is in it for the utility of what's already built rather than in it for the belief in the future to sort of continue
It's sort of development and momentum. Right. Like you couldn't ban the internet at this point. There was probably a time in the early nineties, late eighties
Where the government could have said, Yeah, no internet and people would have been like
Would have been cool.
I'll use my web TV instead. I'll use my web TV. And there wasn't money tied up into it, and I think we're past that point now, but I think that's the race.
Okay, thank you for helping me tie off that section in a way that calms my uh
Just felt like we were we we missed something there.
Playbook?
Yeah, playback.
So the first one that I thought was really interesting is that
Just to contrast this against the Bitcoin episode.
Bitcoin's like pretty set in stone.
But Ethereum evolves.
And they've demonstrated this ability to learn from mistakes, adjust the underlying software and the contracts to change to what the community feels is best.
And that's for better or for worse.
Like
Is Ethereum truly immutable? Does it have strong
Uh what's the phrase? No, I don't think it's truly mutable. And yes, it does have weak subjectivity. Like that there's still
are been a bunch of hard forks. Right. There are decisions that are left to human actors who can influence fifty one percent.
fairly easily and then it it changes the way the world works. We talked about the three mining pools.
It's sort of this uh
In contrast to Bitcoin.
It does represent
The
human.
Element.
of the way that all of our existing social monetary technology systems are structured where we do have faith in institutions.
Not that I think this actually happened, but like it would be much less crazy.
than with Ethereum to say like
Bitcoin was probably like given to us by the aliens. I'm not saying that it was, but it could have been. You know, this is like it was like a uh a a technology transfer from an advanced society where they were like, Here it is, you know. Whereas that is not as we've seen with the history like with it, Ethereum has been built in public by humans. Yep.
Yeah, the other thing that makes me think Bitcoin is built by aliens is no human could sit around with sixty billion dollars in a bank account and never touch it. You're talking about Satoshi. Satoshi Bitcoin state.
Tell you.
I've got one that I think is a really, really big playbook theme that
We've only scratched the surface here and we we can't fully dig into but I think we're
Going to in the future of acquired.
Quite often.
Is you know, look, like Fred Wilson's arguments
Against Vitalic and against the foundation had a lot of merit.
And
Rewinding back to the original history and the founding, you know.
Charles and
Anthony and the
desire to do a for profit company.
for this as the vehicle and to raise venture financing.
There was merit for those things.
Ethereum and so many other crypto organizations since Ethereum have proven
That there is another way.
To generate.
And for
people and institutions to capture
Amazing amounts of value outside of a traditional US C corporation.
with a foundation. I mean like Solana is a combination of a
foundation and a C corporation that is operating things, but most of the value and most of the tokens are held by, I believe, by the foundation.
This is a whole new way of structuring
Projects, companies.
It's it's kind of like Packing Slicker Super Teams idea, you know? It totally is, and this is gonna change
A lot and certainly lots of VC funds, USV, Andrews and Horowitz, you know, etc. have been like and and crypto native funds have been like
Yeah, cool, we get it. We're gonna buy tokens.
Instead of buying shares in
C Corp, like.
Cool. And maybe it's that simple, but like
I think we're just scratching the surface of all the implications of this. Yep.
All right, I got another one that we we touched on earlier, but is worth sort of repeating that like
would we literally think of what was the playbook to build Ethereum, what was the playbook to build Bitcoin, it was bootstrapping the network with illegitimate use cases.
But then once that
network has been laid, like
You do
really cool stuff on it and like cool, legitimate stuff that is better than what came before, or at least serves a different use case because now you have this infrastructure. And I was trying to think like
Where did this show up or or did we see this with the internet?
in the same way that we've seen it in in crypto, where you know you had the Silk Road in Bitcoin, you had ICOs with Ethereum. Like people talk about sort of the adult industry being an early adopter of the internet and pioneering video technologies and like
That happened to some extent.
talk about it really in history, but there's a thing called spank chain.
Spank chain, Spancoin, something like that. That it for sure was one of the first applications on Ethereum. Yep.
But the I guess the contrasting point that I want to make is like
It's interesting to me that the internet started
in university computer science departments.
And
Maybe I'm missing a a huge chunk of internet history, but it doesn't feel like a bunch of nodes were lit up on the internet.
because people wanted to access it something illicit.
And it it's fascinating to me that that has happened twice in crypto.
but was not a part of the internet or really, I don't think a part of the PC revolution and didn't really seem to be a part of the phone revolution. It's sort of like a new way to the same scale, I don't think gain widespread adoption. Yeah. Yeah.
Yeah, I mean it's a spectrum.
So the playbook is start with a
Illicit use case the if you want to get adoption. The crypto playbook is figure out how to get as many nodes on your network as possible as fast as possible at whatever cost so that you can gain what will happen.
the the benefit of what will happen down the line with it.
Make sense to me.
Packing any playbook themes.
I mean I think the interesting thing on that playbook theme is that
People who are operating
selling drugs.
In porn all had a really hard
Time operating.
in the existing system. So I think it's less illicit use cases.
And it's more enabling something that wasn't possible for a group of people before.
And those people were
Not able to transact in the the existing
system to the same extent that they were in something kind of decentr centralized and a little bit more anonymized. And so I think
Certainly that piece is true, but I think that's maybe a playbook theme is that
you know, if you're enabling something uh that
It wasn't previously possible.
to a certain group of people, that's where you get your first adoption. It's like maybe like marketplace building one oh one is find that passionate core niche and expand outward from there.
I think maybe that's the like the kinder, gentler way of looking at what happened.
Here.
Another playbook
The theme
To me is
There's something around the idea that
There's all of these use cases that are internal to the network right now.
And they're still looking to find ways to kind of influence the quote unquote real world a little bit more.
But I wonder if there's a playbook theme around
How do you build up use cases that are
internal to your network to get that initial activation energy.
Before
Going out and taking over
External use cases.
Yeah.
Man, it's it it leads me to another thing that I've been thinking about a lot with Ethereum and crypto broadly.
that I I sent out this tweet the other day that was
It was in this vein of jobs to be done that you're sort of talking about, Pecky, which is what are examples of blockchain based applications that A, created a lot of value besides profits from speculation, B would have a worse user experience if built on centralized technologies, and C has a primary function that is not finance or currency.
And I got a lot of really good pushback from a number of people, including friend of the show Chad Whitman.
That were basically like
Why would you put C in there?
Like why does it have to have finance or currency not be
a core part of it.
Because
What web three is is bringing finance and currency in an integrated way to networked software.
And like it's like
In the way that
Web two was about bringing dynamically loaded data into your web pages.
It's kind of like asking like
What's a good example of a web 2.0 app that doesn't use Ajax?
You know, it's sort of like
the jobs to be done of all things on web three on the crypto internet do involve
a transfer of value between people.
And I I I think like I'm sort of coming around to the idea that
Yeah. I'm not gonna see like
the next Spotify that is just straight up better than Spotify, but decentralized. And because it's decentralized, it's like
No, we're gonna see a version of Spotify that lets me transact directly with artists because like transacting directly
or something involving decentralized finance is actually the point.
of web three.
Yeah. I think Dows are
Fascinating here as well. We're
the big innovation and where most of the people are doing their work is not on the technology side, but it's on the
Incentive design and the tokenomics and all of the things to help
coordinate groups of people on the internet in ways that might otherwise either
not be possible or be filled with so much friction. And that comes back to the financial aspect and
Whether or not it's
financial
Right.
tokenization aspect where at least you have status from owning a bunch of tokens or other things and so
I think that idea of
Baking incentive design.
into the core of the product and letting the community
design incentives for themselves is
Mindbendingly fascinating.
Shoot guys. I mean like I've been and I've I've gotten been interested in uh
In big cloud.
That's such a good example of this, right? Like what is BitCloud? It it's Twitter with money.
Right.
Twitter with money is super freaking different than Twitter. Totally. Like the many times I have wanted to invest in someone
some way that I thought was criminally underfollowed for the quality of their content. And like
Yep, that is exactly what it lets me do. Yep.
Cool. All right, I think that about wraps it for Playbook for me.
Me too.
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Okay, grading.
How are we gonna do this?
Are we gonna decide on air how to do this?
I guess so. Uh I thought you had a playoff. So well, I'll tell you what we're not gonna do, and Packie and and David can doodle on what we are gonna do.
So we are deliberately not grading this one on the investment return of ETH.
Bitcoin
I think we we talked about was a three million X in one decade. That is the the single greatest return in human history on any asset in one decade.
But that is not what Ethereum is about. It it is the world computer.
Sure it's a financial asset, but it's not primarily a financial asset.
And so of course it it is a cryptocurrency, but I think if we like focus in on grading
And and sort of tying this episode up.
Based on its investment return, I think we're missing the point. Yeah.
Totally agree.
So David. How are we gonna grade this one? Put on me. I think we should grade
The Ethereum Foundation.
on their stewardship of
The Ethereum network.
Over the past.
Uh seven years.
Yeah, and to abstract it even more, you could say like
Grade how Ethereum's implementation
How successful has it been?
given the sort of germ of the idea initially of the world computer that exists on a blockchain.
Yeah.
I think it is.
Utterly amazing.
What has
Happened.
Here.
No Vitalic, no white paper.
No foundation.
None of this would exist. No DeFi, no NFTs, no crypto kitties, no MBA Top Shot.
No, but
Audio. And like yeah, none of these things are quote unquote mainstream yet, but they're like pretty darn close and there are
billions and billions and billions of dollars of economies that have been created here. So like
That is
Out of this world.
That's on the one hand.
Now on the other hand.
Look like twenty fourteen was a long time ago.
They've shipped like a bunch of versions.
But like
relative to certainly the initial promise of we're gonna be at
The Serenity release by twenty fifteen.
We are way far behind here.
And I think Vitalik himself has certainly
said and admitted that there are many things he would want to go back and change about the beginning of Ethereum and the trajectory that it's
Been on.
So
I'm gonna land on an A minus.
I think it gets a range.
because of the first part of what I just said of like
This is freaking unreal.
Now the actual execution, like you're not ready for prime time yet, guys. So um you know, they're getting there, but that's uh I'm gonna go A minus. And it's funny how it's like it just parallels so many other open source things. Like
famously the the meme in the early two thousands was next year is the year of Linux on the desktop.
This stuff.
You're hurting cats. Again, and Vitalic is literally hurting cats. It's literally hurting cats. So it's sort of to be expected with the path that they chose.
Uh the question is, was it executed better or worse than your sort of average open source?
Project.
given what a world changing idea they had they had to start with.
I do like your A minus. The only thing and I'm gonna violate the way that I initially opened this um by talking about ETH here, the only thing
Yeah.
When
possibly push me closer to an A, but I'm not gonna go there.
And I'm gonna land with an A minus is the fact that
They have created$200 billion plus of market cap in six years. And you look at like Uber that IPO'd at 80 billion after 10 years, and like that everyone refers to as like, geez, if I could just get a little Uber in my portfolio, you know, like just one. All I need is one. You hear so many VCs that are like, yeah. So
The value creation activity
Or at least perceived value creation activity that Vitalik and the team have done in the last six years, seven years, whatever it is, is
remarkable and outpaces basically every hypergrowth startup.
For sure.
Yes.
I
Cannot argue with that.
But
A minus to your point of like if this is the route that you choose in this open source foundation way and this is the way you choose in which to execute it.
there are laws of human physic that govern your ability to continue to affect change. You got to manage it well.
And
They've managed it okay.
Yep.

Packy?
You left the A wide open for me.
And of course the rainbows and you're butterflies guy.
The other big kind of
Crypto theme that we've touched on a little bit, but not don't
That we haven't
Talked about too much.
is the idea of tradeoffs. And I think there's a bunch of trade offs inherent with the way that they decided to do things. They have a human team that is just the starting point that they've dealt themselves. So if you're starting after that.
I think given the fact that they have a human team.
given the fact that they don't want to change things too many times and change things
They're not going to be able to do
forked and they've made some decisions in the past that
That
you know, aren't very human decisions, but they can't do that.

be viewed as a secure thing.
They're of course going to be slower.
Obviously it'd be amazing if they were faster, but look at the explosion of things that
has happened on Ethereum.
In the past year.
Despite all of that, and maybe they made the exact right trade offs even accidentally over the past few years to get to the point.
The world wasn't ready. It was accidentally super lucky that
You know, it was at least stable.
during the time when we were all locked inside and looking for new ways to organize ourselves and all those things. So there's
A ton of luck involved as well.
But I think looking from then to now and then what's potentially going to happen in the future and like the
The seeds of things that are being planted right now.
to even just be alive to this point when there have been other
blockchain spin offs and Bitcoin spin offs and other things and Ethereum
Is still standing is
number two and the most exciting in terms of just like world changing potential.
I mean I I don't know how you do a much better job than that, whether it's by skill or luck or some combination of the two.
You have to give it an A.
All right. There we go.
I I didn't expect anything less.
Tacky McCormick.
Not boring.
As expected.
Yeah, well you guys wanna do some uh some carve outs before we we w wind it up here?
Yeah, I actually have
S
Great ones.
Ooh multi carve out. Yeah, well it it's two in the same category.
So
Criminally.
As longtime listeners to the show, you know, I've I've been reading sci fi for
Uh not my whole life, but like a number of years now, and I really enjoy it.
Love it, been through, you know, the Asimov books and everything like
So fantastic.
I have not until the last couple of weeks read Arthur C Clarke.
Uh
It's fantastic. I love his stuff.
Famously, you know, he uh
coined the term any sufficiently advanced technology is indistinguishable from magic.
Often.
quoted in the tech world and plenty of other things, concepts he pioneered. He was writing in the fifties and sixties, kinda like
Same time ish as Asimov.
And uh
His writing is great. I really like it. So first book I read was Rendezvous with Rama.
That's a really cool one.
about a dead seeming alien spacecraft enters our solar system and
what happens. Um
That's super cool. And then I'm in the middle of the city and the stars right now.
Uh, which I'm also really enjoying set.
Billions of years in the future where all of mankind has been reduced to one single city.
Uh on Earth. Yeah, the rest of Earth is a desert.
Yeah.
Super cool.
Highly recommend.
I like it.
Adding to my list.
I'm gonna do a little bit of a popcorn one this time,'cause I think I've been a little heavier in the past. I'm watching Loki right now on Disney Plus, and it is exceptional.
It is
So clever.
There are so many little details.
Yeah.
opens in a way where I'm like, oh my God, I totally didn't realize there was this hole.
In
Avengers in in the MCU where they created an opportunity to go and tell this entire story with Loki.
And
as soon as I saw the beginning of the first episode, I was like, Oh my God, of course that was unresolved. And I I just think it's it's Marvel and it's Disney at their absolute
sort of storytelling best.
And
Just be so that I don't say full rainbows, I contrast it heavily with the
Winter Soldier show that they've come out with where it seems like Loki
Was
made for people who like are looking for these sort of really
Clever, fascinating.
Marvel on top of their game shows. They're made for the nerds. Yeah. And then they just like cranked out that winter soldier thing like it was like Pacific Rim or just like so it felt really off brand in a way where I I was uncompelled. So
It's interesting to see how some of these spin off shows they're doing from the MCU and from
Did you watch uh Wandavision?
I did. That was that was great too. Loki's like one division caliber.
So
If you're into that, go check out Loki. It's great.
Great.
Alright, so I'm actually gonna go to sci fi as well. It's pretty much over the past year and a half
All I've been reading.
And recently my friend
Ben Rollert, a composer, recommended that I read Diamond Age by Neil Stevenson. And he's famous for Snow Crash and coining the term metaverse and all those things. Yeah. Diamond Age is really fascinating because it's
A non digital future. It's a future where a lot of the innovation has come on the
physical side of things. And
the world map is split up in all of these interesting ways and it takes place in what is today China and they have these matter compilers that make all sorts of interesting things, including
Islands and airships and
It's just like a totally different view of the future where no one spends any time on
Computers.
And it's all centered on this
Book that
Talks to the reader and
is actually read out loud by
A real human actor and
It's just a very different view of the future than I'm used to reading in sci-fi.
And the best part
Is it reminds me in terms of writing style.
a lot of Kurt Vonnegut.
And so it's just this really fascinating
Book to read. I would highly recommend Diamond Age by Neil Stevenson.
Awesome. Love it.
Since this is the season finale.
I got two more. Can we can I throw in two more? Let's keep going. All right, let's keep going.
I've been playing on Xbox Game Pass.
Near Automata.
Uh, which is a square in X game that never would have played otherwise. It's kind of a weird game to play because you've got to
play through it like four times to add like it's a whole it's like a watching the Pick Lebowski. It's like yeah, it's like a it's like an auteur type piece.
It's kinda cool though. Like Packy reminded me of it of like this weird future
It is sci fi in that you play as a as an Android and you're fighting robots, but like
Yes, it's a very different vision of the future, uh, that I find
Interesting.
And then my
Other one.
The pandemic has subsided here in the US. We are very
Lucky on that front. I've been vaccinated.
Couple of weeks ago I did a
In person.
recording with Jeff uh Software Oh so freaking fun to like to be back in person, like Ben and I are here now.
Packy, we gotta get you out here next time.
uh live. It's so great.
And at the end of it.
We were like we were hanging out, we're like, it's so great to hang out.
You wanna play some Magic the Gathering? And so we put a Magic the Gathering night together with a couple of buddies and like God, it was so much fun to just be like back in person playing cards, like so fun.
That's awesome. Listeners, if you haven't checked that out yet, it's a great episode with Jeff and David, so go listen.
Well speaking of Paki.
Where can people find you on the internet?
You can find me at not boring dot co or at packy M on Twitter.
Great, well
Packie, thank you so much for joining us.
Listeners.
What really enjoyed being on the the journey the last six months. I mean
uh whiplash and holding all these competing ideas concurrently and uh
Just forming.
new perspectives and new ways of looking at the world. I hope you've enjoyed it as much as as David and I have. And um it's truly a privilege to be able to do this and um get all the incredible feedback and and comments that we do from you all. So
Thank you.
Thank you.
So much.
If you wanna
be a part of what we do here. You should become an LP. We're gonna do more Zoom calls in the coming months and and uh more book clubs and we got fifty plus great I think probably closer to seventy five plus great LP episodes in the catalog.
uh for everything from the basics of VC fundamentals through pricing and packaging, through hiring and building great teams, all sorts of good stuff in there.
If you want to become a part of the acquired community, that is free, and no doubt we will be discussing this episode. You can join the Slack at acquire.fm slash slack.
And lastly, if you aren't subscribed, you should.
And if you like this, please, please, please share it with a friend, share it on social media.
We really appreciate you uh helping to grow the show.
With that.
Thank you so much, and we'll see you next season.
See you next season.
Who got
Is it you, is it you?
You who got the truth now