V God Interview | PoS cannot reduce transaction fees! After the Ethereum merger, what’s next?

Ethereum Co-Founder V God (Vitalik Buterin said that Ethereum’s recent major upgrade has paved the way for more technological change and wider adoption.

The long-delayed upgrade that changes the way transactions are verified on the Ethereum blockchain is seen as one of the big moments in the cryptocurrency space, but at the same time, the merger doesn’t make the current prospects of cryptocurrency applications and what they seem to be. Blockchain technology based on it has become more complex.

WIRED Global Editorial Director Gideon Lichfield (GL) and senior author Lauren Goode (LG) caught up with Buterin via Zoom to discuss the recent bursting of the cryptocurrency bubble, whether decentralized technologies can support social-scale decision-making, and post-merger the next great innovation. Let’s recap the Q&A highlights from this interview:

GL: Congratulations on completing the merger, what does the merger mean to you?

V God: I am very happy, and indeed relieved. This is a transition that the entire Ethereum community has been working on for the past 8 years. Along the way, a lot of people (both from the Bitcoin community, and crypto skeptics) wondered if a merger would happen, aka Proof-of-Stake (PoS) conversion. We are happy that they were finally proven wrong.

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

V God:One of the biggest opportunities that PoS brings is economic resources, the ecosystem no longer needs to spend on proof-of-work (PoW) superior.All projects will have more resources than before.

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

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

LG: You answered my next question, what is the next great innovation we can look for after the merger? Can you give a specific example? Such as developers doing something they couldn’t do before, or couldn’t do it efficiently before.

V God:Scalability is a big issue. Ethereum has what we call a Layer 2 scaling model, and our plan is to gradually upgrade it to allow the blockchain to handle larger amounts of data. Then there are these independent protocols that take this data as a component and build on it to create a “mini-Ethereum” similar to what’s inside Ethereum.Together these will be able to handle a large number of transactions. Now Ethereum can process about 20 transactions per second, which may add up to between 5,000 and 100,000 transactions.

In the Ethereum ecosystem, a lot of work is required to build these Layer 2 protocols. Merging makes it easier.The transition to scalability could be the next big thing the Ethereum ecosystem does after the merger. It’s equally exciting in my opinion. It can also be the next game-changing point.

GL: After the merger, how do you think this year’s crypto winter will affect Ethereum?

Buterin: That’s a good question. I have publicly stated many times that I am looking forward to a bear market to some extent. In the 2020 and 2021 bubble, one of the biggest things against cryptocurrency development is that cryptocurrencies “inflate” before they really mature enough to handle the level of attention they’re getting. Looking at the graph of Ethereum’s energy consumption, I think more than half, maybe more than two-thirds, happened in the past two years. It would have been better if the merger had happened two years ago, and it could have been worse if it had been delayed another five years and happened after another very big crypto bubble.

The same is true from a scalability perspective. Last year, Ethereum’s transaction fees (per transaction) were as high as $5 or even $20, and if there was another huge price bubble, it could easily rise to $100 or $200. Cryptocurrencies are a way of empowering the third world, banking the unbanked, and supporting those marginalized by existing institutions, but huge transaction fees seem ridiculous.

I’ve been dying to properly address scalability issues before the next mass adoption and widespread adoption of the ecosystem. One of the benefits of a temporary drop in price is that we will have a chance to do that. PoS does not reduce transaction fees, but it is important that we address scalability issues before we can go all-in on reducing transaction fees.

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

Buterin: I feel the same about NFTs as I did a year ago. I think sustainable NFTs will be useful NFTs. In the initial stages, there were tradable artworks and cat pictures, and many of those things had already been destroyed. In order for an NFT to have lasting value, holding it requires some real-world benefits, not pure HODL.

The most successful NFT use cases so far are ENS domain name. The success and popularity of ENS domains makes people not even think of them as NFTs. A lot of people on Twitter last year were using names ending in .eth, and I have Vitalik.eth too. These names are NFTs located in wallets at specific addresses.If you have this NFT, then if I want to send someone ETH , or to interact with them via an Ethereum app, I can type in their .eth name. Aside from this decentralized Ethereum ecosystem, it’s really convenient to have a domain name or username on the web have the same functionality in any kind of chat app.

Another interesting use is the entire NFT gaming space.Axie Infinity The game was a huge success last year, but Axie Infinity was hacked and hasn’t really “recovered.” In my opinion, the reason is that the people who designed these first generation NFT games had an attitude that financialization alone was enough to make the game fun (only Earn without Play). But that’s clearly not enough, even if there’s no monetization factor, for a successful NFT or Play to Earn game, fun should come first. Whoever figures out how to make a fun blockchain game first wins.

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

V God:I think blockchain can be a great technical infrastructure to run a lot of these very low-level mechanisms. They’re good for money, they’re good for things like the domain name system. I think at least the formal components of the governance system can be partially put on the blockchain. But governance also includes communication and everything around the system, much of which will happen on the off-chain platform.

Blockchains like voting are an interesting example. For example, people often talk about the censorship resistance that blockchain brings. The word “resist censorship” gives many people the impression that “I want to do bad things, but I don’t want the government’s consent”. But people forget that voting does need to resist censorship. If the government can censor your ability to vote, it means the entire democratic system stops functioning altogether. It’s important for voting systems to have such a powerful feature of “resistance to censorship” that if you want to vote, then you should be able and pretty sure your votes went where they can be counted. I think blockchain combined with some other type of encryption technology can provide features like privacy very well.

LG: You write in an article in your new book that “in traditional governance, there are ways for the incompetent to spend money to gain power and leadership roles”. Can blockchain prevent this from happening?

Buterin: Yes, blockchain can prevent that from happening. That’s one of the reasons why I think privacy technology is important. I’ve been talking about zero-knowledge proofs over and over because I really believe in the importance of privacy, not only to help protect people from bad social structures, but also because it’s a necessary ingredient to make multiple social structures possible.

Corruption in elections, and people’s ability to gain power by spending money, are among the use cases where privacy becomes a really important factor. Because if everything is transparent, everything you do will be influenced by other people’s incentives.

GL: How should cryptocurrencies be regulated?

Buterin: I think it depends on what aspect of cryptocurrency is regulated. First the encryption base layer, then the top application layer. For the base layer, we try to prevent it from being regulated, especially by any one country. But once you start getting into the application layer, there are different domains of applications. The specific things people do with blockchain are more likely to be regulated. It is much harder to publicly show that they are completely free from any form of regulation.

In the Ethereum community, we are not ideological theorists. The Ethereum ideology theory represents that if anything regulated happens, it is a betrayal of the value of the blockchain, meaning the entire system fails. There are different parts of this stack, some will be less regulated and some will be more regulated.

Tornado Cash was sanctioned about a month ago and this is just the latest instance of the current regulatory issue of how to deal with improving blockchain privacy, which is a challenging issue, on the one hand, I think financial privacy is necessary and a lot of people are Agree with this. Cash is something people have had for thousands of years. A lot of people don’t want this dystopian scenario where a cashless society brings a greater degree of oversight into people’s lives. But at the same time, the real concern is that the hackers who swept away billions of dollars could completely obscure where their money was going, and whether that would create a flow of money for bad governments.

GL: One last question. What happens if Ethereum or cryptocurrencies fail to deliver on their world-changing promises?

Buterin: If we solve the scalability and privacy issues, nothing interesting still happens. There are bound to be critics: “Look, there’s nothing really interesting about cryptography in large-scale applications other than moving money.”

In fact, the “money transfer” factor alone cannot prove that encryption is useless. If after we address scalability and transaction fees, nothing interesting still happens, and some zero-knowledge proof issues happen (which I think will happen in the next few years), then a very pessimistic scenario for the technology will start to intensify. So, addressing scalability and transaction fees is the standard I set for myself.