Speaker 1: Hello and welcome to another episode of the odd lots podcast.
Speaker 1: I'm Joe Wisn't all and I'm Tracy. Tracy. Something very
Speaker 1: big is happening in the crypto world and it's not
Speaker 1: about like, it's not about lines going up and down,
Speaker 1: because so much of what excites to me about Crypto
Speaker 1: is that the lines move so much. That's fun. But
Speaker 1: there's something else, and it's not strictly price related. The merge. Merge,
Speaker 1: I feel like someone needs to make like a movie
Speaker 1: poster with the merge written in creepy letter. Doesn't make
Speaker 1: it look like an old horror movie kind of thing.
Speaker 1: But yeah, the merge is happening in ethereum. Yeah, right,
Speaker 1: and so people have been telling us, Oh, you gotta
Speaker 1: have a merge episode. You know, there's so much going
Speaker 1: on we can't always get around to every topic, but
Speaker 1: this is like ethereum is switching its consensus mechanism from
Speaker 1: proof of work, which is like kind of like bitcoin mining,
Speaker 1: very energy intensive mining operation the most pop associate with Crypto,
Speaker 1: to proof of steak, and so it will be a
Speaker 1: different approach to creating and validating blocks and they've been
Speaker 1: working on it for years and years and years and
Speaker 1: it's finally happening. So I'm going to caveat this discussion
Speaker 1: with the fact that I haven't been following this very intently. However,
Speaker 1: I do find it interesting because it gets to something
Speaker 1: that you wrote, I guess it was a year ago
Speaker 1: or so now, about, you know, the crypto world kind
Speaker 1: of splitting into these two different camps and on the
Speaker 1: one side you have people who are very into the
Speaker 1: technology and technology. You know, one aspect of technology is
Speaker 1: that it evolves, it changes, and so in that respect
Speaker 1: this is a theory um evolving and changing in a
Speaker 1: very big way. But the other camp and crypto are
Speaker 1: the sort of Bitcoin maximalists, the fundamentalists who don't want
Speaker 1: to see anything change about bitcoin and the technology at all.
Speaker 1: I'm really glad you brought this up. I think that
Speaker 1: is spot on, because there's this question of like well,
Speaker 1: what is is it software or isn't money? And I
Speaker 1: think there's like these two camps and if it's software, right,
Speaker 1: or if it's if software is a really big component,
Speaker 1: that a part of software is upgrades, right, upgrade cycles,
Speaker 1: and you know, it's like Microsoft might update it's browser
Speaker 1: or something every year or something, and then at some
Speaker 1: point there, like the old browser will not be supported,
Speaker 1: you can't use it anymore, right, whereas this sort of
Speaker 1: like money stands. There was sort of like hardcore bitcoin
Speaker 1: view is, you know, if you're gonna have money, you
Speaker 1: don't ever want to be told this money isn't good
Speaker 1: anymore or there's been a hard fork or there's been
Speaker 1: some sort of change to the network and you have
Speaker 1: to do something, you have to change something, you have
Speaker 1: to update your software to use it, and I think
Speaker 1: these are like fundamentally very big things and I think this,
Speaker 1: this merge, this huge switch from sort of traditional mining
Speaker 1: to proof of steak is really important, sort of culturally,
Speaker 1: setting etherium apart from bitcoin and its willingness to change
Speaker 1: the rules from time to time of the network a
Speaker 1: touchstone moment for crypto. But it also gets to the
Speaker 1: idea of pros and cons of different types of blockchains. Right.
Speaker 1: So ethereum is trying to solve one problem here, which
Speaker 1: you know might, for instance, be energy use, which a
Speaker 1: lot of people have focused on, a lot of crypto
Speaker 1: critics have focused on saying that mining wastes a ton
Speaker 1: of energy. So why don't we try to fix that?
Speaker 1: But on the other hand, does the new design come
Speaker 1: with its own set of problems? And we've already seen
Speaker 1: some noises around the idea of well, maybe you're making
Speaker 1: it less censorship resistant, and we're going to get into that. Yes,
Speaker 1: and so one of the developments over the last several
Speaker 1: weeks is the treasuries sanctioning of Tornado cash, which is
Speaker 1: a way for people to obfuscate their ethereum transactions through
Speaker 1: a mixer, and it's the first time that the Treasury
Speaker 1: has ever sanctioned a piece of software, which is pretty interesting.
Speaker 1: But then it also raised the question will if they
Speaker 1: can sanction a piece of software, why can't they sanction
Speaker 1: ethereum itself? Or can they tell ethereum holders or ethereum
Speaker 1: acres in this new proof of steak mechanisms? Like you,
Speaker 1: you're going to get in trouble if you process blocks
Speaker 1: from entities that are trying to launder money, etcetera. A
Speaker 1: whole new can of worms. It's always evolving. We're always
Speaker 1: trying to keep up here on the podcast. So let's
Speaker 1: try to learn some more about it. Let's do it.
Speaker 1: I don't even know what a validator is versus a mind.
Speaker 1: Let's get a steaker, a validator, a minor or relayer,
Speaker 1: a whole Er. I don't know any of these words,
Speaker 1: so we're gonna be talking to someone who does. I'm
Speaker 1: very excited to welcome to odd lots Christine Kim. She
Speaker 1: has a research associate at galaxy digital and she's been
Speaker 1: writing about these topics for galaxy clients for a long time. So, Christine,
Speaker 1: thank you so much for coming on. How did we
Speaker 1: do there in the introgue? This is like foreign territory.
Speaker 1: Was that? How do we do there? That was excellent. Um,
Speaker 1: I think we've already done you guys have condensed this
Speaker 1: entire podcast and everything I wanted to talk we can
Speaker 1: stop now. A minute. Yes, and we can stop now.
Speaker 1: Tracy and I like we still we we had a
Speaker 1: busy day. We started prepping about the fifteen minutes ago
Speaker 1: and I said Tracy, like we're gonna we talked about
Speaker 1: proof of steak and Tracy turns to be like three
Speaker 1: minutes later it's like, I think this is going to
Speaker 1: like create some centralization them like it sounds like you
Speaker 1: got it, but no, I was really impressed from your perspective, Christine,
Speaker 1: like let's just start, like how significant like is this
Speaker 1: moment for a theorem? And like, what's the real goal?
Speaker 1: We know reducing energy consumption as part of it, but
Speaker 1: why do you put this in context on the ethereum roadmap?
Speaker 1: For us, for sure, I think it's hard to understate
Speaker 1: just how big, or overstate, I should say, how big,
Speaker 1: this upgrade is. The transition to proof of steak has
Speaker 1: been part of Etherorum's original development row, back when the
Speaker 1: blockchain first launched in two thousand and fifteen. Developers had
Speaker 1: thought that this upgrade would be ready earlier in but
Speaker 1: due to the technical challenges of actually swapping out the
Speaker 1: consensus mechanism of ethereum while it's live, um brought forth delays,
Speaker 1: and so people have been asking for this upgrade. Developers
Speaker 1: have been working on this upgrade for around seven years now,
Speaker 1: and it's it's truly it was almost to the point
Speaker 1: where people had thought that etheroum would never transition, that this,
Speaker 1: that this transition to proof mistake was just a pipe
Speaker 1: dream Um. And so the fact that this is the
Speaker 1: week in which ethereum will finally fulfill one of the
Speaker 1: promises that it had made to its users its investors
Speaker 1: back when it first launched. I think is is pretty
Speaker 1: monumental and it's really not just about the changes to
Speaker 1: its energy consumption. I think another big change that people
Speaker 1: are really looking forward to is ethereum's monetary policy switching
Speaker 1: from being an inflationary currency to potentially a deflationary currency.
Speaker 1: The annual network issuance of the network is expected to
Speaker 1: drop from around five to less than zero point five percent.
Speaker 1: And if you add in Coin Burns, which is like
Speaker 1: a new mechanism that that was introduced back in October,
Speaker 1: or I should say August, with the I nine, there
Speaker 1: is this. There is a lot of excitement around ethereum's
Speaker 1: issuance of the issuance of Eth and the supply of
Speaker 1: actually contracting over time. With more activity on the network.
Speaker 1: You're going to see more eth being burned and that
Speaker 1: impacting total supply. So I think that's another big part
Speaker 1: of it. It's like the economics around eat. That's going
Speaker 1: to be changing after the merge. So I just want
Speaker 1: to ask one short question make one point. We are
Speaker 1: recording this on September, the merge. The event is expected
Speaker 1: to happen in about a day by the time you're
Speaker 1: hearing this. It should have happened if it totally blows
Speaker 1: up or something, we might have to re record the
Speaker 1: entire episode, or maybe we'll like put this out as
Speaker 1: an artifact of a history that might have been. But
Speaker 1: just a real quick technical question. This is called the merge.
Speaker 1: Does that imply that the proof of steak, does the
Speaker 1: proof of steak ethereum already exist and now the two
Speaker 1: networks are merging together? Like, is this this other chain
Speaker 1: that has a different consensus mechanism that's already operating? Yeah,
Speaker 1: that's exactly right. So the proof of stake blockchain of
Speaker 1: ethereum has existed since I think it was December. Um
Speaker 1: It's called the beacon chain and right now a very
Speaker 1: small portion of eight is issued on that parallel chain
Speaker 1: and there's individuals and stakeholders that have already invested their
Speaker 1: money into that chain, the beacon chain, and for the merge,
Speaker 1: what's going to happen is that chain is going to
Speaker 1: become fused together with ethereum main net today. But in
Speaker 1: the process of that change, all of the issuance that
Speaker 1: happens on ethereum currently, which goes to miners, will disappear,
Speaker 1: will go to zero, and so the only issuance of
Speaker 1: that you have left is to the validators that are
Speaker 1: on the beacon chain now, and that's really just a
Speaker 1: fraction of the total issuance that's that's being generated today.
Speaker 1: So I have a ton of questions already. I'm also
Speaker 1: kind of hoping that our producer is able to put
Speaker 1: in like sound effects every time we say the merge,
Speaker 1: so it was like merged and I love them. Okay,
Speaker 1: on a serious note, can we back up for a
Speaker 1: second and can you maybe describe the difference between proof
Speaker 1: of work versus proof of steak, and also how ethereum
Speaker 1: got into a position where they have two different types
Speaker 1: of chains, so beacon versus the normal ethereum chain, and
Speaker 1: then also, on top of that, maybe to describe the
Speaker 1: difference between proof of work and proof of steak. Could
Speaker 1: you walk us through, like how will a new ethereum
Speaker 1: be created under this new regime, and what happens to
Speaker 1: the miners in this case? I started by asking two
Speaker 1: questions of a rose. That questions you're gonna have to
Speaker 1: you're gonna have to remind me if that get to
Speaker 1: answer one of those Um, but let me start with
Speaker 1: just giving a broad overview of the difference between proof
Speaker 1: of work and proof of steak and then, okay, yes,
Speaker 1: and then, and then we can go from there. Wow,
Speaker 1: I love the enthusiasm around this, though. I totally agree
Speaker 1: with you guys that, like the merge is a really
Speaker 1: big event, and like educating people around how this is
Speaker 1: actually happening and even the technicals beneath it, which sometimes
Speaker 1: can sound boring, is like really, what's what's exciting. So
Speaker 1: I'm glad we're talking about this. But anyways, so I
Speaker 1: think it's it's useful to start off with what is
Speaker 1: a consensus mechanism or a consensus protocol, because that is
Speaker 1: that is what a proof of work and a proof
Speaker 1: of stake blockchain is. It's basically this is the mechanism
Speaker 1: that defines how nodes in a blockchain come to agreement
Speaker 1: about the state of the network. So what are the
Speaker 1: account balances, the transactions, the updated transaction history of the blockchain?
Speaker 1: There needs to be a way for all the computers
Speaker 1: that are connecting to the network, also called nodes, to
Speaker 1: be aligned about what the canonical history is. And so
Speaker 1: it's really about how do you process blocks on a blockchain?
Speaker 1: How do you finalize those transactions? And with proof of work,
Speaker 1: you do that in a very energy intensive way. You
Speaker 1: have these actors that are called miners, are solving a
Speaker 1: very computationally intensive math problem. These are called Hash functions,
Speaker 1: and every miner is competing to be the first person
Speaker 1: to find the correct solution because that means that they
Speaker 1: get to build a block, include transactions in it get
Speaker 1: the reward from the block. But for proof of steak,
Speaker 1: these actors, these miners, are replaced by validators and instead
Speaker 1: of solving that very computationally intensive puzzle, validators are voting
Speaker 1: on blocks and they're attesting to blocks and they just
Speaker 1: get randomly selected by the network according to an algorithm
Speaker 1: of who gets to be a block proposer. So on ethereum.
Speaker 1: It's not that. When when's the theory and transition to
Speaker 1: proof of steak, I should caveat. These validators are not competing,
Speaker 1: they're just randomly selected to to propose a block and
Speaker 1: they'll get rewards from that. They'll also get rewards from
Speaker 1: voting on blocks and attesting to the validity of those blocks.
Speaker 1: But the question is, why are these validators on ethereum?
Speaker 1: How how do we keep them honest? Because with miners
Speaker 1: you've already expended so much computational energy you've kind of
Speaker 1: input in a very high cost. You're not going to
Speaker 1: lose the chance to earn those rewards after you've sunk
Speaker 1: in a particular amount of cost. With validators, you haven't
Speaker 1: really sunk in anything. You haven't expended any energy to
Speaker 1: vote or a test, to blocks or to propose blocks.
Speaker 1: If you did, it's it's very negligible compared to what
Speaker 1: miners do. So what validators need is we need a
Speaker 1: different way to keep these validators honest, and that way
Speaker 1: is through steak. So sometimes people call validators steakers. They
Speaker 1: try and use that term interchangeably. But at the core
Speaker 1: of that is validators, at least on Ethereum, are staking
Speaker 1: a large amount of ether. They're staking thirty two eight,
Speaker 1: which I haven't checked the prices as of late, but
Speaker 1: it's a significant amount. And if they do try and
Speaker 1: cheat the network, if they do propose a block that
Speaker 1: goes against the rules of the network, that they're trying
Speaker 1: to confuse the network, trying to attack the network or
Speaker 1: change the validity of the chain, there is a potential
Speaker 1: that that amount of steak that they've put into the
Speaker 1: network gets slashed. So it's a very different way of
Speaker 1: keeping actors honest. For minors, you are you are expending
Speaker 1: a lot of cost upfront and that cost kind of
Speaker 1: keeps you honest. But for validators, what you're doing is
Speaker 1: you're you're locking up your capital and you're letting the
Speaker 1: network kind of hold onto it, and the fear of
Speaker 1: having that steak slashed is what keeps you honest. It's
Speaker 1: so you mentioned you have to put up right now
Speaker 1: at around if you're putting up a minimum to be
Speaker 1: a validate, or U S dollars, and I guess it's
Speaker 1: kind of like a security deposit. The risk is if
Speaker 1: you do something untowards to the network, if you vote
Speaker 1: bad if you try to approve in valid blocks, you
Speaker 1: lose part of your security deposit. Exactly exactly. And so this,
Speaker 1: this mechanism for proof of steak is seeing one of
Speaker 1: the benefits of it is that it is more ecologically friendly.
Speaker 1: It has better for the E S G narrative, because
Speaker 1: you're not putting in so much energy just to build
Speaker 1: a block. You're being randomly selected by the network to
Speaker 1: build a block, and the reason why you can be
Speaker 1: trusted to make sure that that block is is correct
Speaker 1: and is valid is because you've already invested, you know,
Speaker 1: a certain amount of state to the network and for ethereum.
Speaker 1: I think the original idea was, okay, we have this
Speaker 1: mining consensus protocol that is already finalizing transactions, progressing blocks.
Speaker 1: We should move all the applications and the users to
Speaker 1: a new consensus protocol, to a proof of steak network
Speaker 1: and blockchain. But the concern, there's a significant amount of
Speaker 1: complexity around that, because what is that moving process going
Speaker 1: to look like? Ethereum over the past couple of years
Speaker 1: has just skyrocketed in terms of active addresses, total value locked.
Speaker 1: I think the the amount of value that has grown
Speaker 1: on ethereum, the amount of activity that has grown on Ethereum,
Speaker 1: has made the vision to just simply move users and
Speaker 1: applications and value to another new chain infeasible, very difficult
Speaker 1: to do so. Instead of moving users on the current
Speaker 1: ethereum chain to a new proof of stake block chain,
Speaker 1: developers have thought of this, this alternative idea where you
Speaker 1: launch the proof of steak version of ethereum and you
Speaker 1: simply fuse that version of ethereum to the existing ethereum.
Speaker 1: So one of the cool things about the merge is
Speaker 1: that it doesn't impact the application layer of ethereum. It
Speaker 1: really only impacts how blocks are finalized. So as the
Speaker 1: current ethereum block chain is progressing blocks, it will communicate
Speaker 1: those blocks to back to the consensus layer of Ethereum,
Speaker 1: which is the beacon chain, and the beacon chain will
Speaker 1: start to take over the response of the of finalization.
Speaker 1: So that question of you know, why is it that
Speaker 1: ethereum has a parallel proof of state blockchain and why
Speaker 1: is it that we're going down this roadmap of of
Speaker 1: merging together the block chains rather than simply upgrading the
Speaker 1: existing proof of work chain? I think it really comes
Speaker 1: down to simplicity and it comes down to how do
Speaker 1: we do this upgrade in a way that doesn't result
Speaker 1: in downtime and doesn't result in disruptions to a network
Speaker 1: that has just grown so much quicker than I think
Speaker 1: core developers had anticipated when they first launched ethereum, and
Speaker 1: I think that's also why we've seen a lot of
Speaker 1: delays to this upgrade, because the value of this chain
Speaker 1: and the amount of user activity on it has made
Speaker 1: it so that, you know, this upgrade, when it happens,
Speaker 1: has to be done in a way that's that's very
Speaker 1: air tight, that's very poses the least minimal amount of
Speaker 1: damage and of risk to the users and to the applications.
Speaker 1: So I think I missed some questions. Actually, any questions
Speaker 1: on that? I think you did. I think you did
Speaker 1: all three. Actually, Um, that was really good. So one
Speaker 1: thing that I find odd about crypto in general is that,
Speaker 1: like the problem that they're trying to solve is the
Speaker 1: problem of like how do you do trust less transactions?
Speaker 1: Like two parties don't trust each other. How can technology,
Speaker 1: you know, get in there and make it so that
Speaker 1: people can transact with one another in a, you know,
Speaker 1: in a way, that in a protected way? But at
Speaker 1: the same time it feels like so much of it
Speaker 1: is like or at least especially in the ethereum case,
Speaker 1: so much of it is built on consensus. It's like
Speaker 1: two parties can't trust each other, but we trust the
Speaker 1: system as a whole to reach a consensus, and that's
Speaker 1: basically how you know proof of stake is working. How,
Speaker 1: how do they actually get to that consensus and what
Speaker 1: happens if, like one validator in a transaction rejects a block?
Speaker 1: Consensus really is at the core of of these technologies.
Speaker 1: It's a really question because these systems are meant to
Speaker 1: be trust less. It's meant to uh cut out the
Speaker 1: middlemen Um, like you said, and for proof of work
Speaker 1: consensus protocols, that trust less uh interaction between miners validating
Speaker 1: and earning rewards from block production is actually much simpler
Speaker 1: than proof of state consensus protocols, because proof of state
Speaker 1: consensus protocols don't rely on an external good, it doesn't
Speaker 1: rely on energy, it just relies on an internally created
Speaker 1: asset like like. You have to assume that E is
Speaker 1: a worthwhile asset for proof of stake to work. So
Speaker 1: that question of you know when a validator rejects a
Speaker 1: transaction or when a validator creates a block that all
Speaker 1: the other validators think is false or or goes against
Speaker 1: the rules of the network, that's something that the protocol
Speaker 1: level of Ethereum, as a proof of stake blockchain, is
Speaker 1: automatically checking for. So there are certain rules around how
Speaker 1: you can propose blocks. So one of the ways that
Speaker 1: you prevent against double spends, basically like somebody saying that
Speaker 1: I spent five dollars and I can spend another ten
Speaker 1: dollars from the same address and and not change, like
Speaker 1: the account balance. That is prevented by the network. Basically
Speaker 1: checking for double block proposals, like if a validator to
Speaker 1: were to propose two blocks at the same time, that's
Speaker 1: like a slash double event. That's something where the state
Speaker 1: that they've put into the network gets reduced. And there's
Speaker 1: also other ways in which validators can keep each other honest,
Speaker 1: even if those automatic rules aren't able to catch all
Speaker 1: the activities. So this kind of goes into the censorship
Speaker 1: question of like, let's just say we've noticed that a
Speaker 1: certain validator continues to reject transactions from an address that's
Speaker 1: on the o FAC sanctions list. validators can coordinate to
Speaker 1: the sally like blacklist those malicious validators, because when you've
Speaker 1: put your stake into the network, you've also told the
Speaker 1: entire network that hey, this is my validator, I d
Speaker 1: this is my address. You are no longer like an
Speaker 1: anonymous uh stakeholder, whereas for, I think, miners, when you're
Speaker 1: dedicating hash rate or hash power, to basically computational energy
Speaker 1: to the network, that kind of labeling system is is
Speaker 1: harder to do. But for validators, once you've put locked
Speaker 1: in your thirty two to the to the network. It's
Speaker 1: held by the network and it's also identified by the network.
Speaker 1: So another way in which validators keep each other on,
Speaker 1: it's outside of these like automatic rules, is this ability
Speaker 1: to kind of put bad behaving validators out of the network.
Speaker 1: Now this requires social consensus, this would require some sort
Speaker 1: of an upgrade, some sort of a way for everybody
Speaker 1: to coordinate against those those validators. But that's kind of
Speaker 1: like another final resort where I think it helps to
Speaker 1: to understand like how is how is this network coming
Speaker 1: to consensus? Like initially it's like these rules, these pre
Speaker 1: programmed rules that are part of the protocol, but sometimes,
Speaker 1: like rules can't always catch all of the malicious behavior. Um,
Speaker 1: and in the case where you're not able to catch
Speaker 1: the malicious behavior, there's also this additional step that you
Speaker 1: can take. Um, sometimes it's called social slashing, Um, where
Speaker 1: validators can basically like remove certain bad acting validators from
Speaker 1: the network and slash their steak, even though they haven't
Speaker 1: necessarily drawn against the technicalities of the rules, that they
Speaker 1: can just kind of like coordinate to do that. So
Speaker 1: I think this really gets to what was going to
Speaker 1: be my next question, and it's one of the criticisms
Speaker 1: of proof of steak is okay, most people, probably, I
Speaker 1: assume most people who own some don't have thirty two
Speaker 1: of them or don't have but doesn't mean they can't
Speaker 1: participate in steaking. And if my understanding is like, okay,
Speaker 1: take some random person, buys a few eth leaves it
Speaker 1: on coin based, coin base can then be itself a
Speaker 1: huge validator of youth. But talk to us about the
Speaker 1: risk of a few mega validators, because I think when
Speaker 1: the essentially the undermining of decentralization such that, okay, there's
Speaker 1: I think there's something called Lido, there's coin based, probably
Speaker 1: a few others. But the the risk of everyone just
Speaker 1: putting their money with a couple and then you just
Speaker 1: have a couple public, well known entities who are, in theory,
Speaker 1: like have you know, dealing with the laws of their land,
Speaker 1: the law enforcement of the countries they operate in, and
Speaker 1: the executives of these companies, a handful of entities with
Speaker 1: an incredible amount of steak deef and therefore network power
Speaker 1: under their control. It's a bit concern. I definitely have
Speaker 1: to say that it's always been known this potential for
Speaker 1: a lot of state to become controlled by centralized entities
Speaker 1: like coin based like Lito. But I think the recent
Speaker 1: sanctions against Tornado cash we're just like a wake up
Speaker 1: call for the community and because of that there has
Speaker 1: been a lot of conversation around what would happen if,
Speaker 1: you know, these entities started to sensor transactions. I think
Speaker 1: first it's not totally clear that these exchanges and the
Speaker 1: centralized staking providers will need to but in the event
Speaker 1: that they do, we shouldn't, I guess, like understate the
Speaker 1: role of independent validators in the system. So if, by chance,
Speaker 1: there's a transaction that coin based Lido starts to censor,
Speaker 1: they're not going to include it in a block. Eventually
Speaker 1: the network will pick a independent validator to propose a block,
Speaker 1: and that independent validator will not be judging transactions by
Speaker 1: are they on the o fact sanctions list or are
Speaker 1: they not? They'll just be picking it from the public
Speaker 1: men pool. But let's just say, you know, for the
Speaker 1: sake of argument, that a hundred percent of validators, that
Speaker 1: not even five percent, not even you know or fifteen
Speaker 1: percent of validators, are even in pendant. In that case
Speaker 1: there can be changes to the protocol made so that
Speaker 1: a certain amount of transactions are kind of enforced by
Speaker 1: validators to include into their block. This comes back down
Speaker 1: to another kind of area of discussion, which is around
Speaker 1: o fact compliant relays. I don't want to get too
Speaker 1: technical to this, but that's here. I don't I think
Speaker 1: we said at the beginning, I think relay was one
Speaker 1: of the words, that I don't know what it means.
Speaker 1: Let's go for it. Okay, well, great. Um. So relays
Speaker 1: are basically a third party software that validators will connect
Speaker 1: to in order to earn additional rewards on the blocks
Speaker 1: that they create. So you get a certain amount of
Speaker 1: reward for just producing the block. You also get rewards
Speaker 1: through transaction fees. These are additional amounts of beef that
Speaker 1: people can add to their transactions for greater priority. There
Speaker 1: sometimes called priority fees, and there's also MTV, maximal extractable value,
Speaker 1: which is what happens when transact s are ordered in
Speaker 1: a certain way that allows for arbitrage, allows for sandwiching,
Speaker 1: basically profits from positioning trades, usually decentralized finance trades, in
Speaker 1: a very specific way. So, if so, validators are not
Speaker 1: super savvy and identifying decentralized and identifying opportunities for MTB.
Speaker 1: validators are really, you know, operators that we want to
Speaker 1: assume are just running a piece of software. They're they're
Speaker 1: just running the consensus protocol of Ethereum as is, and
Speaker 1: they're just sitting back like earning the interest on their
Speaker 1: thirty two e Um. But if they wanted to earn
Speaker 1: additional they can connect to a relay, which is this
Speaker 1: third party software that connects block builders to validators. And
Speaker 1: block builders are the ones that are interacting with searchers,
Speaker 1: which are very highly specialized users that are able to
Speaker 1: look at the men pool and bundle transactions in a
Speaker 1: profitable way. And these block builders they construct a block,
Speaker 1: they construct a very profitable block that gives more our
Speaker 1: of rewards than just a regular block that validators would
Speaker 1: create on their own. So some of these relays are
Speaker 1: operated by entities like flashbots, and flashbots has publicly and
Speaker 1: has been for a very long time compliant with regulatory
Speaker 1: laws and has said that, you know, we are an
Speaker 1: entity that will be censoring transactions that are on the
Speaker 1: o fact list or transactions from addresses that are on
Speaker 1: the o fact list, and they're kind of a major
Speaker 1: they're going to be one of the major relay operators,
Speaker 1: but there are other relay operators, like blocks route that
Speaker 1: have said that, you know, will operate relays that validators
Speaker 1: can can connect to that won't be censored. And going
Speaker 1: back to the to the hypothetical that, like all these
Speaker 1: relays are suddenly censored, like, let's just say there's not
Speaker 1: even one, then validators can enforce something called the CR list,
Speaker 1: like censorship resistant list. This is a technology that's still
Speaker 1: in the works, but it's something that developers could potentially
Speaker 1: roll out if they see that, you know, all the
Speaker 1: validators are all relays and MTV extraction is just kind
Speaker 1: of going to a specific relay like flashbots. That's, you know,
Speaker 1: censoring transactions and it's very difficult for validators to include,
Speaker 1: even independent validators, to to stay competitive, to earn MTV
Speaker 1: UM and to do so in a way that's censorship resistant.
Speaker 1: What developers can release and what they're considering as a
Speaker 1: as a potential solution is implementing CR lists, which are
Speaker 1: a portion of the block that validators stuff with transactions
Speaker 1: directly from the public men pool. So instead of receiving
Speaker 1: from a relay an entirely pre built block that's already sensored,
Speaker 1: that validators themselves can only accept or reject. They're able
Speaker 1: to enforce, you know, a portion of that block you
Speaker 1: must include these transactions. So it takes away the power
Speaker 1: of block building and of censoring transactions away from the
Speaker 1: block builder Um, because there is this assumption that, because
Speaker 1: the validators, the value a database of ethereum Um won't
Speaker 1: be completely completely controlled by these like centralized entities. We
Speaker 1: want to keep the power and keep the the ability
Speaker 1: to like include transactions more in the hands of validators
Speaker 1: than in the hands of these other, potentially more centralized entities.
Speaker 1: By the way, Tracy, you know, in addition to the
Speaker 1: merge itself, I know like for at least like a
Speaker 1: couple of years or year, I've been getting tweets about
Speaker 1: how we had to do an episode on MTV and like,
Speaker 1: which I kind of think is like might be like
Speaker 1: the crypto version of payment for order flow or things
Speaker 1: like that. Christine's answer there was reminded that that's probably
Speaker 1: gonna have to be a whole separate episode at some point.
Speaker 1: Maybe we should just do an all thoughts series where
Speaker 1: we go through like every term one by one. Some
Speaker 1: of these terms are kind of like weird like I'm
Speaker 1: going to ask you. I have to be careful how
Speaker 1: I pronounced this at some point, but Christine, I'm going
Speaker 1: to ask you about chardon Um later in the conversation.
Speaker 1: But okay, before we move on, just on the censorship
Speaker 1: centralization issue, I'm curious what the ethereum people have said
Speaker 1: about this, because one of the unusual things about ethereum
Speaker 1: versus a network like Bitcoin, is that you actually have
Speaker 1: a figurehead in the form of metallic Peuterin, and I'm
Speaker 1: curious what he's what he said on this issue, because
Speaker 1: I think most crypto people are ideologically opposed to centralization
Speaker 1: and middlemen and aligning themselves with government requirements like sanctions
Speaker 1: and things like that. But at the same time, the
Speaker 1: more we talk about this, more you can kind of
Speaker 1: argue that ethereum is sort of going mainstream and maybe
Speaker 1: refining itself so that it better fits into the existing
Speaker 1: financial and legal system, and that could also be a strength.
Speaker 1: So I'm wondering what they've said on this issue. That's
Speaker 1: a great question. I think that the community, especially in
Speaker 1: in the aftermath of what happened of the sanctions and
Speaker 1: it's tornado cash we've seen a lot more. I've seen
Speaker 1: a lot more like segmentation, a lot more disagreement, I think,
Speaker 1: in the ethereum community about what is the best way forward.
Speaker 1: There are people in the ethereum community that are a
Speaker 1: lot more cipherpunk, a lot more to the vision of
Speaker 1: what the Bitcoin community is that even the slightest amount
Speaker 1: of censorship on ethereum should be condemned. If if, even
Speaker 1: if it's only coin base, even if it's only Lido,
Speaker 1: those entities should be punished and should be removed from
Speaker 1: the network. I think that's a very extreme view and
Speaker 1: most ethereum core developers, and I think I mean I
Speaker 1: don't speak for Vitalic, but I would assume that him
Speaker 1: to most have landed in this middle ground of even
Speaker 1: if there is centralization, even if there is censorship happening
Speaker 1: by these these exchanges, so long as there's even a
Speaker 1: small amount of independent validators that are processing transactions, these
Speaker 1: non compliant transactions will get into the ethereum blockchain eventually
Speaker 1: and that means that ethereum is kosher, that ethereum can
Speaker 1: still be considered like a censorship resistant network. And then
Speaker 1: I think you can go to the other extreme where,
Speaker 1: you know, very big entities, major entities in the sense
Speaker 1: of like they're huge figureheads, I guess, in the in
Speaker 1: the in the ethereum community, and that's entities like flashbots
Speaker 1: that are very open about the way that they are
Speaker 1: compliant and about the way in which they don't see
Speaker 1: a future in which they're operating, you know, in like
Speaker 1: North Korea or like places in which U s sanctions
Speaker 1: don't matter. So it's just very pragmatic and realistic, I think,
Speaker 1: but not but like not trying to fight the powers,
Speaker 1: like not trying to to really rock the boat by
Speaker 1: choosing a different path. And so I think there's this tension,
Speaker 1: this tension between even the middle ground of developers and
Speaker 1: of individuals that want to preserve the censorship resistance of
Speaker 1: the network. But I have to face the reality is
Speaker 1: of like these big players that our core to the
Speaker 1: infrastructure of etherium, like core too, what ethereum is today.
Speaker 1: Like you can't necessarily just cut off all the exchanges.
Speaker 1: You can't necessarily just like cut off flashbots, because they
Speaker 1: literally built the software for how validators are going to
Speaker 1: earn MTV. So in that future, you know you have
Speaker 1: to negotiate, you have to think about other third ways,
Speaker 1: and there's actually a really great talk by vitallic, who
Speaker 1: recently went to the Stanford blockchain conference, about how he
Speaker 1: foresees different ways to decentralize the block building community. And
Speaker 1: so really I think developers have landed on like how
Speaker 1: do we improve the situation, how do we decentralize ethereum further?
Speaker 1: But just recognizing that in the short term and in
Speaker 1: the medium term there's a high potential that transactions will
Speaker 1: be censored and that ethereum as a staking community, as
Speaker 1: like a validator community, will be controlled majority by these
Speaker 1: bright late identities, which is a pretty, I think, alarming fact.
Speaker 1: So I'm looking back to something you said earlier about
Speaker 1: this idea of like social slashing, such that a theoretical validator,
Speaker 1: even if they didn't technically break consensus mechanism rules, could
Speaker 1: potentially lose some of their coins if the other validators
Speaker 1: voted in such a way. And you know, going back again,
Speaker 1: you know it's like Vitella himself can say anything he wants,
Speaker 1: but vitellic doesn't have to deal with like Gary Gensler,
Speaker 1: and vtellic doesn't have to deal with Treasury, Brian Armstrong
Speaker 1: on the other hand, does right. And so, Brian Armstrong,
Speaker 1: an your shareholders. Are there any attacks? And I use
Speaker 1: attack liberally, I don't listen, I mean a hack, but
Speaker 1: I mean are there any like attacks that essentially worked
Speaker 1: through the social slashing mechanism, such that the government, some
Speaker 1: government somewhere, or the U S government or the Treasury specifically,
Speaker 1: can do something damaging to the ethereum network through these entities?
Speaker 1: And you know, is there a form of social slashing
Speaker 1: that Brian Armstrong might have to do or might have
Speaker 1: to push for, potentially in some theoretical future where it's
Speaker 1: not about penalizing a entity that broke consensus mechanism rules,
Speaker 1: but something that they have to do like sort of
Speaker 1: like at behest of a government? Like would the government
Speaker 1: potentially hey, like could you senors transactions technically possible? Yeah,
Speaker 1: because right, like attacks on any block chain are difficult,
Speaker 1: like it's difficult. It would be difficult for a government
Speaker 1: to attack the BITCOIN blockchain, in part just because it
Speaker 1: would be hard for a government to acquire the hash power,
Speaker 1: potentially to acquire enough chips such that it could take
Speaker 1: control of the network or exectent attack or something like that.
Speaker 1: But again, if, like, coin base ends up as the
Speaker 1: dominant thinker or the dominant validator and coin base has
Speaker 1: to uh go by all these rules, is there something
Speaker 1: that they, the government in the future scenario, could pressure
Speaker 1: coin base to do from a sort of like social
Speaker 1: consensus standpoint, that other members of the community might view
Speaker 1: as being damaging to the integrity of the chain? Yeah,
Speaker 1: I think in that case, like where coin base does
Speaker 1: enforce like these regulations from a government authority that the
Speaker 1: entire community doesn't also agree with, it would cause a split.
Speaker 1: It would cause a split in the chain of Ethereum,
Speaker 1: versions of Ethereum that are compliant and non compliant. But
Speaker 1: I think that would also undermine like the very value
Speaker 1: of ethereum. So it's almost like thinking through, like doing
Speaker 1: this thought process of what a social slashing event could
Speaker 1: look like and the split that it would cause should
Speaker 1: deter any proponent or, like anybody who's thinking of doing this,
Speaker 1: because it it might like irreparably damage like the value
Speaker 1: of the change. So good. An example perhaps I'm thinking
Speaker 1: of is like what if the government said unit swap
Speaker 1: and other defy exchanges are illegal stock markets that are
Speaker 1: unregulated by the SEC? Coin based can you make sure
Speaker 1: that you don't validate any transactions that interact with these
Speaker 1: defy exchanges, which would be like a massive rupture, because defy,
Speaker 1: of course, it's huge for in crucial to how the
Speaker 1: theorym works. But one could imagine say like you can't
Speaker 1: be processing transaction for a rogue stock exchange or something
Speaker 1: like that, which would be a kind of attempted imposing
Speaker 1: in very severe kinds of censorship. What happens then, and
Speaker 1: how would how does the network heal or find a
Speaker 1: way to route around such a big entity being told
Speaker 1: by the government that it can no longer process defy transactions?
Speaker 1: I think ideally, I mean this is very like an
Speaker 1: ideal sentiment. I don't know if this is would actually happened,
Speaker 1: but ideally, use ar is of Ethereum, recognize that this
Speaker 1: is not appropriate or like is not behavior that they
Speaker 1: should support, and they take away their steak from coin base,
Speaker 1: like they don't stake through coin base. Like as a
Speaker 1: staking provider, coin base falls and you know, other decentralized
Speaker 1: staking providers like rocket pool and potentially lie do down
Speaker 1: the road if they do fully decentralize, that these are
Speaker 1: the staking providers that step up but of course this
Speaker 1: requires a great deal of like cohesion among the community
Speaker 1: and like a shared belief and a shared value of hey,
Speaker 1: like we, ethereum only makes sense if it's censorship resistant.
Speaker 1: Ethereum only makes sense if staking providers can't Um, can't
Speaker 1: actually sense for transactions, and I think there's technologies that
Speaker 1: are being looked at, like zero knowledge proofs, to try
Speaker 1: and obfuscate even the contents of a transaction so that
Speaker 1: the power of validators to even know what kind of
Speaker 1: transactions they're validating is completely out of their control. But
Speaker 1: of course I recognize that that's not the reality today
Speaker 1: and that coin base does have the ability to to
Speaker 1: build their own blocks and include whatever transactions they want
Speaker 1: as validators, validator note operators, and in this case I
Speaker 1: think it really is up to the ethereum community too
Speaker 1: to choose staking through providers that they are confident Um
Speaker 1: uphold like the values and the ethos of the community.
Speaker 1: But what complicates even this is that right now you're
Speaker 1: not able to withdraw steak from staking providers. Um. It's
Speaker 1: that functionality is not enabled yet on ethereum. It will
Speaker 1: probably be enabled, you know, at minimum, but like six
Speaker 1: to twelve months after the merge happens, and so that
Speaker 1: interim where, you know, we've already seen a lot of
Speaker 1: state go to coin base and a lot of state
Speaker 1: go to Lido. I think the question remains of how
Speaker 1: users can coordinate, and one of the ways is, you know,
Speaker 1: again like like we talked about social slashing, but I
Speaker 1: I definitely I think that kind of possibility is more deterrent.
Speaker 1: Like I don't think that it ever really comes down
Speaker 1: to it. I think it comes down to coin based
Speaker 1: censoring and users not being able to withdraw their steak
Speaker 1: and basically more independent validators being spun up to try
Speaker 1: and ensure that other trends, that all these transactions that
Speaker 1: are that are non compliance still get included in the blockchain.
Speaker 1: And arguing too regulators that hey, even if I sensor transactions,
Speaker 1: it doesn't mean that ethereum as a blockchain is anymore
Speaker 1: like regulatory, like compliant, that these transactions are still going
Speaker 1: to get included one way or the other and that,
Speaker 1: you know, from like a profit point of view, like
Speaker 1: it doesn't make sense for us to even continue as
Speaker 1: a staking provider. So that kind of argue that as
Speaker 1: a staking provider, it it doesn't make sense for us
Speaker 1: to continue to sensor transactions because they're going to get
Speaker 1: included into the chain one way or another. And I
Speaker 1: think a very similar issue we saw with with certain
Speaker 1: bitcoin mining pools back in the day censoring transactions and
Speaker 1: those mining pools quickly being condemned by the bitcoin community
Speaker 1: and kind of like social of social pressure changing how
Speaker 1: their policies work. But I think, hopefully, you know, a
Speaker 1: similar thing could happen in ethereum. But again, as I mentioned,
Speaker 1: there's like those degrees and those schisms that are being
Speaker 1: created where certain big players in ethereum don't actually, like
Speaker 1: fully subscribe to the Cipherpunk Vision, and I think in
Speaker 1: that case it's it's not a dent clear how cohesively
Speaker 1: the ethereum community will act. Tracy, by the way, zero
Speaker 1: knowledge cryptography. Well, before I forget, another whole episode talk about.
Speaker 1: I feel like every answer you give, Christine, and they're
Speaker 1: very good answers, but like they just throw up a
Speaker 1: billion more questions. So I'm wondering, you know what happens
Speaker 1: like if a bunch of validators decide to kick out
Speaker 1: coin base for Censoring Trans Actions, like the CFTC is
Speaker 1: asking for, then are they immediately in violation of the
Speaker 1: CFTC or u s law or something like that. But okay,
Speaker 1: maybe a slightly less thorny topic. How do you judge
Speaker 1: the success of the merge? Is it like price of
Speaker 1: ethereum goes up, number of transactions go up, gas fees
Speaker 1: go down? I don't even know if this has any
Speaker 1: impact on gas fees. That would be interesting to hear
Speaker 1: from you about, but like it doesn't. Okay. So what
Speaker 1: are you looking at when, when we're deciding whether or
Speaker 1: not this was a successful exercise, I actually take the
Speaker 1: very minimalistic point of view. I only want the chain
Speaker 1: to finalize. That's it. I don't care about the price,
Speaker 1: I know. I'm not looking at ethereum Um, I'm not
Speaker 1: looking at theoreum addresses, I'm not looking at transaction activity. Really,
Speaker 1: for me, like what I deem as a successful merge
Speaker 1: is that after that the proof of steak blockchain fuses
Speaker 1: together with ethereum main neet and that version of ethereum
Speaker 1: finalizes and that it is able to progress through epochs,
Speaker 1: like be able to verifiably create new blocks, come to consensus.
Speaker 1: There's a really this is a shameless plug, but there's
Speaker 1: this report that I've written on how to watch the
Speaker 1: merge Um that you can find on galaxy dot com.
Speaker 1: But it illustrates that what you're looking for is basically
Speaker 1: the progression of two epochs, which are Um that their
Speaker 1: intervals of time, and in order for an epoch to finalize,
Speaker 1: you need at minimum like two thirds of active validators
Speaker 1: attesting to that epoch, saying that the transactions and the
Speaker 1: blocks that were completed in that epoch are all kosher
Speaker 1: and are all good. Once you have have had two
Speaker 1: epochs of that, you consider the network finalized, because after
Speaker 1: that finalization point it's very hard to revert the transactions
Speaker 1: or the blocks that had been created before that finalization point.
Speaker 1: So really what I'm looking for is just to see
Speaker 1: the chain finalized because it means, and the reason why
Speaker 1: is because it means that the merge and the technical
Speaker 1: shift from just swapping out your consensus protocol has worked.
Speaker 1: It doesn't say anything about how, you know popular that
Speaker 1: upgrade was, how traders and the users view this change
Speaker 1: of proof of steake. It just it just says that, hey,
Speaker 1: this swapping of this transition from proof of work to
Speaker 1: proof of steake worked this very risky upgrade that requires
Speaker 1: two different hard forks worked that transactions and blocks are
Speaker 1: continuing to be processed and that, like if you were
Speaker 1: to send a transaction on unit swab, if you were
Speaker 1: to send it to another person, you now don't have
Speaker 1: miners like processing those transactions. You actually have validators doing
Speaker 1: it behind the scenes and that functionality is good to
Speaker 1: go and that functionality we don't have to worry about
Speaker 1: it breaking anytime soon. So I just have one more
Speaker 1: short question and it's a question that I'm thinking about
Speaker 1: a particular twitter user. So Dan, who's under Dan Metaschewski
Speaker 1: at at CMS Holdings, always dms me and he says
Speaker 1: I love odd lods, but you guys are so negative
Speaker 1: all the time. It's always gloom and we've spent a
Speaker 1: lot of time talking about like risks of the merge and,
Speaker 1: you know, centralization and censorship, other than the decrease in
Speaker 1: electricity consumption. Talk to us like, what's the exciting thing here?
Speaker 1: What's the good thing besides that that this is going
Speaker 1: to open up in your view and the long term
Speaker 1: of Theorem Red Matt, what's the what's the positive here?
Speaker 1: This is going to sound very barish, but there's not
Speaker 1: actually too much. Tried to tried. Sorry, if you're listening,
Speaker 1: you better be, because I asked a question just for you.
Speaker 1: I'm sorry. I think one thing is, you know, the
Speaker 1: validators that have been, you know, so faithfully on the
Speaker 1: beacon chain earning this issuance. It's a very small issuance
Speaker 1: in comparison to what miners get, but then again, validators
Speaker 1: aren't expending a lot of energy, so of course you're
Speaker 1: not going to get that much validators. One thing they
Speaker 1: can look forward to is they're going to start earning
Speaker 1: transaction fees, priority fees, and they're also going to start
Speaker 1: earning MTV. So that kind of reward which, you know,
Speaker 1: compared to their the network issuance they yet which is locked.
Speaker 1: They can't actually move that around, they can start moving
Speaker 1: around and and realizing the fees from transaction, from transactions
Speaker 1: in MTV. They can start, you know, sending that over
Speaker 1: to exchanges. They they'll actually start earning that. So I
Speaker 1: think that's kind of a positive for validators and that
Speaker 1: it just becomes more profitable to run one. And then
Speaker 1: the other thing I think about ethereum price is that
Speaker 1: you've got a massive supply drop. You know, all of
Speaker 1: the supply that's going to ethereum is going to uh
Speaker 1: is going to drop from around five percent to zero
Speaker 1: point five percent. And in addition to that, you've still
Speaker 1: got coin burns happening. So that zero point five percent,
Speaker 1: in times of high network activity, will very likely dropped
Speaker 1: to a negative number, where the total supply is actually contracting.
Speaker 1: And and so you've got, you know, a bunch of
Speaker 1: users that are walking up and then you've got, you know,
Speaker 1: issuance of the network dropping significantly. I think the the
Speaker 1: liquidity of of Eth. I'm not really a trader, but
Speaker 1: like that. The supply, the supply going down. I think
Speaker 1: we'll we'll have a positive impact on eth price over
Speaker 1: time and I think that's something that people really look
Speaker 1: forward to and that youth will become, I don't like
Speaker 1: this term, but, quote unquote, ultrasound money. You know, instead
Speaker 1: of having it really is thought of Supply Limit. You know,
Speaker 1: you've got the supply that's drinking over time. Obviously the
Speaker 1: Y S G narrative of ethereum will will continue to
Speaker 1: to thrive and in comparison to bit line, I think
Speaker 1: there's going to be a lot more um narrative around,
Speaker 1: you know, the way that you mint your n f
Speaker 1: t s, the way that you do all these things
Speaker 1: are no longer as energy intensive as they used to be.
Speaker 1: But I think for one of the reasons why I
Speaker 1: say like all of this isn't all that positive, which
Speaker 1: it is, it is very positive, is that I've been
Speaker 1: really waiting for a long time around ethereum scalability and
Speaker 1: the merge really doesn't do very much for Ethereum scalability
Speaker 1: at all. So I'm really looking forward to the fact
Speaker 1: that after the merge, developers will really focus on on scalability,
Speaker 1: and I think that's one of the things. Like developers
Speaker 1: have just been so focused on pulling off this upgrade.
Speaker 1: After this is done and and and out the door,
Speaker 1: I'm really looking forward to developers tackling some of the
Speaker 1: other big issues on Ethereum, like count abstraction and and
Speaker 1: scalability and Um steakty withdrawals, etcetera, etcetera. What is charting?
Speaker 1: We've come full circle. Yeah, well, no, I but okay,
Speaker 1: I honestly have zero idea. But I was a d
Speaker 1: yes podcast pitfalls Um charting. So I see people on
Speaker 1: Reddit talk about this a lot. They're like, Oh, who
Speaker 1: cares about the merger? What I'm really excited about is charting, which,
Speaker 1: again sounds terrible, but could you just explain what that is?
Speaker 1: For sure? I'm going to give a high level overview
Speaker 1: and then I'm gonna give a shout out to a
Speaker 1: really great report around sharting. So shining originally, sorry, starting originally.
Speaker 1: I don't know why, but when you say I've never
Speaker 1: thought of the term charting as weird or as like strange,
Speaker 1: but now that you say strange term, yeah, why? It's
Speaker 1: because everyone, everyone in Crypto. They're not talking to each other,
Speaker 1: they're just writing, and you write charred. It's fine, but
Speaker 1: as soon as you start saying it out loud everyone's
Speaker 1: gonna Laugh about language, how different it is, if it
Speaker 1: is such an insightful point. So charting. Originally, the idea
Speaker 1: of it was, look ethereum. The ethereum blockchain is massively
Speaker 1: has this limited transaction throughput it the block space of Ethereum,
Speaker 1: which is, you know, there's a certain number of transactions
Speaker 1: that can fit into a block and these blocks are
Speaker 1: what get processed and built on top of one another,
Speaker 1: and you can't stuff a block more than its limits.
Speaker 1: You can increase, like the size of a block so
Speaker 1: that it can include more transactions, but if you do that,
Speaker 1: then it becomes more computationally intensive for miners or validators
Speaker 1: to propagate that block throughout the network and so you
Speaker 1: have a higher chance of chain splits occurring. You basically
Speaker 1: increase like the load on validators and miners when they're
Speaker 1: running a node. You have to have very sophisticated software
Speaker 1: to be able to continue to propagate this very, very
Speaker 1: heavy blocks throughout the network. So there's a good rationale
Speaker 1: for why you want to keep the size of blocks
Speaker 1: manageable for an ordinary node. It helps with the decentralization
Speaker 1: of the network. But Anyway, so you've got a limited
Speaker 1: amount of transactions that you can include a pool block
Speaker 1: and if there's very, very high amount of transactions waiting
Speaker 1: to get included, and you know you you have very
Speaker 1: high fees, you've got long wait times. What if we
Speaker 1: were able to partition the blockchain so that, instead of
Speaker 1: blocks being confirmed by this single ethereum Blockchain, you have
Speaker 1: mini block chains, also called shards, that are all processing
Speaker 1: the transaction load of ethereum in parallel together. So you've
Speaker 1: got like, let's just say, for hypothetically, like sixty four
Speaker 1: mini block chains that are all looking at the transaction
Speaker 1: men pool of Ethereum, which is this public space where
Speaker 1: everybody sends their unconfirmed transactions and these miners and these
Speaker 1: validators on these shards are picking out, you know, transactions
Speaker 1: from there and they're all working together to to progress
Speaker 1: the ethereum blockchain as a whole. So that greatly, brightly
Speaker 1: improves the transaction through put of ethereum and the scalability
Speaker 1: of ethereum. How ever, it's an extremely complex design. Sixty
Speaker 1: four many blockchains or even and even like thinking about
Speaker 1: how like transaction automicity, automicity, I think I'm saying that wrong,
Speaker 1: but basically, like how would you be able to communicate, like,
Speaker 1: the finalization of one transaction on a specific chard to
Speaker 1: another Chard, and is their latency between that communication? So
Speaker 1: basically that was the original idea for charting. But again,
Speaker 1: like the complexities around charting, the many unanswered questions around
Speaker 1: how transaction execution would work atomically throughout the whole network,
Speaker 1: those questions started to change how etherium developers think about
Speaker 1: charting and so now that roadmap and that vision is
Speaker 1: is scrap them developers, as a side note, has gone
Speaker 1: through many, many, many different iterations of how they think
Speaker 1: they're going to scale the blockchain and now they've landed
Speaker 1: on this other idea which is very much focused on modularity. So,
Speaker 1: instead of having transactions all execute and all finalize on
Speaker 1: the same chain, what if we abstracted away the burden
Speaker 1: of transaction execution to a layer too, and with a technology,
Speaker 1: technologies like zero knowledge, technology like optimism, which are, you know,
Speaker 1: different types of roll ups. I know I'm using a
Speaker 1: lot of technical but basically we're writting them all down
Speaker 1: for these are these are good for for the good
Speaker 1: for deep dives. But as at a high level, what
Speaker 1: if you abstracted away some of the responsibility of executing
Speaker 1: the transactions to a different network and that network can
Speaker 1: batch together and compress those transactions and then only verify, like,
Speaker 1: the proof of that batch transaction to ethereum, so that, like,
Speaker 1: greatly frees up the transaction and the block space of
Speaker 1: a theory, because now not all transactions are finalizing on
Speaker 1: the theem. You've got batches of transactions that are finalizing
Speaker 1: on a layer two and you're just sending down the
Speaker 1: proofs of those compressed transactions to ethereum. And so dank
Speaker 1: charting is a new iteration of charting that really focuses
Speaker 1: on making the cost of roll ups, the cost of
Speaker 1: these bast transactions, cheaper and introducing a lot more modularity
Speaker 1: to the ethereum blockchain. And I yes, did you say
Speaker 1: Dank charting? Yes, so that's actually the charting roadmap for
Speaker 1: etheroryum now and it doesn't really have anything to do
Speaker 1: with charting, the original idea for charting. And this is
Speaker 1: where I plug in on dram and Charbonneau's hitchhiker's guide
Speaker 1: to etherium, where he talks a lot about this. But yes,
Speaker 1: you're right, Dank charting. But that is that is the
Speaker 1: real version of sharuting that is more likely to be
Speaker 1: implemented today than the version of charting that I explained before.
Speaker 1: Al Right, so we have charting, Dank charting, layer two's
Speaker 1: optimistic roll ups Verse Zero Knowledge Proofs, the ethereum narrative
Speaker 1: versus Bitcoin in MTV. You've given so many future episodes
Speaker 1: for us to now build on. Christine Kim, thank you
Speaker 1: so much. You're the perfect guest for coming on. We
Speaker 1: say that, but that was so clear and so good
Speaker 1: and I know people have told us we need to
Speaker 1: do merge margin and I'm glad we didn't. Just like Russia.
Speaker 1: We got a great guest. So thank you so much, Christine,
Speaker 1: for coming on the PODCAST. Thank you so much for
Speaker 1: having me. You guys. This is lovely. Yeah, there's a
Speaker 1: lot of fun. Thank you so much. Yeah, thanks, Christine.
Speaker 1: That was really interesting and I don't say that about
Speaker 1: every Crypto podcast episode that we do. So thank you.
Speaker 1: Dank charting. The future of all of finance is going
Speaker 1: to be whether whether these voters can make Dank charting work.
Speaker 1: It's like a real word. It's one word. No, I know,
Speaker 1: but this gets to a real point, which is like
Speaker 1: if you're if you're portraying yourself as the future finance
Speaker 1: or the future of money, like can't we get some
Speaker 1: different terms, like things that people could say allowed in
Speaker 1: a meeting? The one that has to go is ultrasound money.
Speaker 1: You can't be talking about that has to go. That
Speaker 1: wasn't really bad. It also begs the question of like,
Speaker 1: if you're going to create ultra ultrasound money, could you
Speaker 1: just like evaporate it, just burn it into oblivion, like
Speaker 1: is that the sound of money? There is just yeah,
Speaker 1: just the one, the one coin. Okay, on a serious note,
Speaker 1: I thought that conversation was really interesting and mostly because
Speaker 1: it gets to that fundamental tension which we kind of
Speaker 1: alluded to in the Intro, which is, if this is technology,
Speaker 1: if this is software, software is supposed to adapt to
Speaker 1: the needs of the people using it or the needs
Speaker 1: of the market using it, and so it throws up
Speaker 1: these questions of like how best to adapt? What are
Speaker 1: you sacrificing as you try to reduce energy usage and
Speaker 1: all those kinds of thorny questions. Yeah, I think ethereum
Speaker 1: is an interesting position, straddling the sort of two worlds right,
Speaker 1: because it was sort of you know, it's one of
Speaker 1: the earlier chains and, as Christine mentioned, it has there
Speaker 1: is still a significant faction that has that sort of
Speaker 1: o g cipher punk, anti censorship impulse. On the other hand,
Speaker 1: it is a more corporate chain in vcs, you know,
Speaker 1: that's what they've put a lot of money and financial
Speaker 1: institutions experiment. Then there is like the purer software and
Speaker 1: you know, some of these newer chains like Salana, etcetera.
Speaker 1: It's like that's just like a company launched that I
Speaker 1: mean technically the company maybe doesn't control it, but there's
Speaker 1: like they're faster, they can probably upgrade even quicker than ethereum.
Speaker 1: They already like started on proof of steak, etcetera. So
Speaker 1: the question is Kenneththerium sort of like navigate this sort
Speaker 1: of like the two tensions, the sort of like community,
Speaker 1: decentralized cipher punk tension with the software world, and this
Speaker 1: is a big moment in terms of, I guess, navigating
Speaker 1: those two worlds. Yeah, it really seems like that's what
Speaker 1: they're trying to do, right. So it'll be fascinating to
Speaker 1: see what happens. And then, of course, if you know,
Speaker 1: if someone like the CFTC, to use your example, were
Speaker 1: to come in and say something and you were to
Speaker 1: get a Validat or like coin base who has kicked
Speaker 1: off the network like it would just be fascinating to
Speaker 1: see how that consensus mechanism actually worked and then what
Speaker 1: happened to all the other validator. It really is interesting
Speaker 1: that the merge is happening so soon after the tornado
Speaker 1: cash sanctioning, because that's like the first time, right, like
Speaker 1: governments like no, we're like going after a piece of software,
Speaker 1: and so you know, it does raise the stakes potentially
Speaker 1: for you know, the government has done all kinds of
Speaker 1: things with crypto, but it's usually like at the Fiat
Speaker 1: on ramp level. Right they're like, okay, you need to
Speaker 1: apply K Y C M L to the money you're
Speaker 1: bringing onto the exchange. But then once you're on, once
Speaker 1: you have the coins, then the government has basically been
Speaker 1: pretty hands free and this is potentially a change right
Speaker 1: at a moment in which some of these big centralized
Speaker 1: entities are going to have a lot of power over
Speaker 1: the network. Yeah, I'm also just interested in the sort
Speaker 1: of like the PR aspect of all of it. If,
Speaker 1: you know, if the government says like we don't want
Speaker 1: you to deal with North Korea or don't let a
Speaker 1: North Korean entity like mind blocks or make transactions on
Speaker 1: your blockchain, and then you have a bunch of people
Speaker 1: going like well, no, actually, we're censorship resistant and you know,
Speaker 1: this is about making, you know, censorship, free money and
Speaker 1: transactions and all of that. That seems like a difficult
Speaker 1: position take, or at least a difficult one when it
Speaker 1: comes to broadcasting that message. Speaking of PR I suspect
Speaker 1: that the crypto industry is going to really turn on
Speaker 1: Bitcoin fast and they're going to say, look at this
Speaker 1: electricity guzzling blockchain, we have something that doesn't guzzle electricity anymore.
Speaker 1: Penalize those proof of work people. I think that that
Speaker 1: battle is coming. This sort of the E S G
Speaker 1: ification of Crypto and the vilification of change that don't
Speaker 1: move to proof of steak, I think will be a
Speaker 1: big story. Oh, I totally agree. But it's also really
Speaker 1: interesting to see bitcoin kind of embrace that position in
Speaker 1: the system. And I think I wrote about this at
Speaker 1: one point, but bitcoin proponents are positioning themselves basically is
Speaker 1: the anti crypto. Now right, that's the foil off of
Speaker 1: which they are playing and I don't know, it's just
Speaker 1: been it's been fascinating to see that narrative be created.
Speaker 1: All right, well, okay, yeah, we can talk about this forever.
Speaker 1: Shall we leave it there? Let's leave it there. Okay,
Speaker 1: this has been another episode of the all thoughts podcast.
Speaker 1: I'm Tracy alloway. You can follow me on twitter at
Speaker 1: Tracy Alloway, and I'm Joe Wisn'tal. You can follow me
Speaker 1: on twitter at the stalwart. Follow our guest Christine Kim
Speaker 1: she's at Christine Underscore D Kim, follow our producer, Carmen Rodriguez,
Speaker 1: at Carmen Armand and check out all of our podcasts,
Speaker 1: Bloomberg under the handle at podcasts. Thanks for listening to