Bankless Dialogue with Vitalik: Where Will Ethereum and the Crypto Industry Go in 2023?

Author: The Reading Ape

Compiled by: Shenchao TechFlow

Preface: As the year comes to a close, Vitalik Buterin returns to the Bankless podcast to reflect on the cryptocurrency industry in 2022 and his hopes for 2023. He also shares his views on the use cases of Ethereum, such as currency, DeFi DApps, identity, DAOs, and hybrid applications.

Cryptocurrency in 2022

• People will remember all the terrible things that happened this year.

• Of course, positive events are also important (e.g., the Merge).

• The Merge reduces transaction inclusion time.

• There are multiple zk-EVMs that will launch mainnets in 2023.

• Significant progress has been made in adoption with Ethereum login.

• Cryptocurrency payments played a role during the invasion of Ukraine.

Was 2022 an unusual year?

• The Mt. Gox incident in 2014 was like a survival crisis for cryptocurrency.

• In 2022, we had a more robust and interconnected cryptocurrency space.

• In both cases, there were vulnerabilities and contagions that led to the collapse of crypto prices.

• Cryptocurrency is no longer in the phase of increasing adoption from 0.1% to 10%.

• Cryptocurrency is now in the phase of increasing adoption from 10% to 70%, which requires a different strategy.

• People losing money is not the main message we want cryptocurrency to convey.

Will we become a niche market?

• In 2011, Vitalik wrote an article comparing Bitcoin to Esperanto, Linux, and the Internet.

• Each of these comparisons began as an idealistic movement hoping to replace existing systems with something better.

Esperanto

• Esperanto is a constructed language that aimed to be a universal language. But it did not succeed and has remained a niche interest.

• English won out due to its numerous network effects.

Linux

Linux is an interesting middle case. It is an open-source operating system with both successes and failures:

• It failed on the desktop; it has no appeal to most people.

• But Linux has become an important backend for Android, servers, and developers.

Internet

• There is no doubt that the Internet has taken over everything.

Bitcoin

The question Vitalik posed in 2011 was whether Bitcoin would ultimately develop like Esperanto, Linux, or the Internet. The result is that Bitcoin may end up in a middle position:

• In developed countries, it may have a position similar to Linux on the desktop.

• In developing countries, it may be ubiquitous, like the Internet.

Thoughts and Suggestions

• The use of the term ETH will surpass the use of the term cryptocurrency.

• This does not mean becoming an Ethereum maximalist.

• The issue is that the crypto space is an ungoverned public space with no barriers to entry.

• Talking about Ethereum does not mean disregarding the wonderful things happening in other ecosystems.

Lessons from the Industry in 2022

• The cryptocurrency space is at its most glorious only when it takes its core principles seriously.

• Open and decentralized projects survive, while centralized ones are questioned.

Use Cases of Ethereum as Currency

• In the Ethereum community, there is a contradiction where some want Ethereum to be just a currency, while others want it to be more than just currency. These two views seem compatible.

• Stablecoins are part of DeFi. But they are so simple and straightforward that most people do not realize they are DeFi.

• The applications that emerged during the OG era were mostly those that genuinely cared about whether they could provide real utility.

• Newer projects focus on providing liquidity and high yields, regardless of sustainability.

"Newer things often prove their worth more through short-term evidence. And this is a very poor epistemology in the DeFi space because it is very easy to achieve short-term success at the expense of long-term performance."

• Vitalik Buterin

Why is Cryptocurrency Important?

• I have personally used cryptocurrency as funding for medium-scale investments and charitable donations.

• So far, cryptocurrency is the easiest way to send money to people's families.

• In many places, fiat currency is unstable.

• In these places, cryptocurrency has clear use cases and is expected to achieve long-term success.

"In my country, there is actually hyperinflation. But I can store my money in Bitcoin and ETH, effectively protecting my savings."

• Vitalik Buterin

Thoughts on DeFi DApps

• The accessible success that people can create is becoming increasingly scarce.

• There are also numerous opportunities (e.g., creating a wallet used by billions, a stablecoin that can survive hyperinflation of the dollar).

Identity Verification

Blockchain identity and identity platforms.

• The concept of identity verification: proving the identity you use to sign information/transactions.

• Over the past decade, Vitalik Buterin has noticed that some people intentionally aim to create identity platforms and identity blockchains.

• These individuals view identity as an abstract concept rather than starting from specific use cases that people care about.

The Emergence of Identity

• The network effects must be activated first.

• In the Cypherpunk world, everyone had a PGP key. They did not really work.

• Now we have Ethereum accounts—private key and public key pairs.

How do different identity systems communicate with each other?

• POAP has been more successful in the Ethereum ecosystem than anything that claims to be a proof protocol.

• Many people have dozens of POAPs.

• There is still a lot of room for entrepreneurship.

• To some extent, they must communicate with each other and agree on unified cryptographic standards.

Why is Identity Important?

• People want an identifier they can use to communicate with others.

DAOs

Vitalik is excited about DAOs.

• DAOs will replace many things outside of companies.

• It is unlikely that companies will be one of the forms that DAOs replace.

• There are two meaningful architectures: the ability to quickly launch multi-signatures and create trustworthy products that can withstand takeover attacks and last for decades.

• DAOs do not emphasize smart contract logic. They emphasize open and spontaneous decentralized collaboration models.

• Trying to be a venture capital fund as a DAO does not make much sense. It will slow you down in a competitive environment, and people can exploit it against you.

Governance Structure of DAOs

• There needs to be non-financial governance to create intentional friction/speed bumps to prevent hostile takeovers.

Hybrid Applications

• Applications that are not fully on-chain but benefit from their connection to the chain.

• Hybrid applications do not face scalability challenges.

• Deployment is much simpler because it does not require users to change their workflows.

• For example: solvency proof protocols make CEX safer, game servers use ZK proofs to publish state on-chain, voting.

Building the Space Positively

• Focus more on applications that drive the development of the space and less on flashy, meaningless applications.

• Continue to engage in dialogue with regulators around the world.

Vitalik's Role in 2023

• Help projects that are building good applications succeed.

• Interact and connect with Ethereum communities around the world.