Proof of Stake - Vitalik Buterin

 

• Nathan Schneider: "The largely young, male, and privileged milieu of crypto culture can often seem so far removed from the kinds of problems participants purport to be trying to solve."

PART I: PREMINING

Markets, Institutions, and Currencies - a new method of social incentivization
Bitcoin Magazine - January 10, 2014

• Medium of exchange, store of value, medium of account.
• Seigniorage can be formally defined as the difference between the market value of a currency and its intrinsic value - that is, the value that the currency would have if no one used it as currency.
• In the case of Bitcoin, just like the dollar, the currency's value is 100% seigniorage; a bitcoin has no intrinsic value. But where does the seigniorage go? the answer is, some goes into the hands of miners as profit, and the rest goes to fund the miners expenses - the expenses of securing the Bitcoin network. Thus, in this case, we have a currency whose seigniorage goes directly into funding a public good, namely the security of the Bitcoin network itself.
• "Doge", a slang term for "dog"
• It is not just the technical superiority of a currency that determines its traction - ideal matter just as much.
• Cryptocurrency enthusiasts who are interested in fairness and decentralization.
• It is possible to set up currencies whose seigniorage, or issuance, goes to support certain causes, and people can vote for those causes by accepting certain currencies at their businesses. 
• Cryptocurrencies are inherently global, and benefit from an incredibly powerful digital banking system baked right into their source code.

Ethereum: a next generation cryptocurrency and decentralized application platform
Bitcoin magazine
January 23, 2014

• A cryptocurrency network that intends to be as generalized as possible, allowing anyone to create special applications on top of almost any purpose inimaginable. The project: Ethereum.
• Bitcoin is to be thought of as a sort of TCP/IP of the cryptocurrency ecosystem, and other next-generation protocols can be built on top of Bitcoin much like we have SMTP for email, HTTP for web pages, and XMPP for chat, all on top of TCP as a common underlying data layer.
• As a protocol for storing and transferring value, Bitcoin is excellent.
• Ethereum aims to be a superior foundational protocol, and allow other decentralized applications to build on top of it instead of Bitcoin, giving them more tools to work with and allowing them to gain the full benefits of Atheneum's scalability and efficiency.
• Each Ethereum contract has its own internal scripting code, and the scripting code is activated every time a transaction is sent to it.
• The financial applications, however, only scratch the surface of what Ethereum, and cryptographic protocols on top of Ethereum can do.
• Incentivized data storage
• Bitmessage and TOR: Bitmessage is a next-generation email protocol that is both decentralized and encrypted.
• Identity and Reputation systems
• Ethereum does not intend to be the end of all cryptocurrency innovation; it intends to be the beginning.
• There is an important distinction compared to Bitcoin and most other cryptocurrencies: here, the eventual supply is unlimited. The "permanent linear inflation" model is designed to make ether neither inflationary or deflationary; the lack of a supply cap is intended to dampen some of the speculative and wealth-inequality effects of existing currencies, but at the same time the linear, rather than traditionally exponential, inflation model will mean, that the effective inflation rate tends to zero over time.
• Ethereum offers no solution for the fundamental scalability problem in all blockchain-based cryptocurrencies - namely, the fact that every full node must store the entire balance sheet and verify every transaction. For that, technology like Eli Ben-Sasson's Secure Computational Integrity and Privacy (SCIP), now under development, will be required.
• If it turns out that proof-of-stake or some other proof-of-work algorithm is a better solution, the future cryptocurrencies may use proof-of-stake algorithms like MC2 and Slasher instead. If there is room for an Ethereum 2.0, it is in these areas that the improvements will lie.
• The only limit is our imagination.

Self-Enforcing contracts and factum law
Ethereum blog
February 24, 2014

• Nick Szabo in 2005. In essence, the definition of a smart contract is simple: a smart contract is a contract that enforces itself.
• So far, the evolution of money has followed three stages: commodity money, commodity-backed money, and fiat money:
• Commodity money is simple: it's money that is valuable because it is simultaneously a commodity that has some "intrinsic" use value. Silver and Gold are perfect examples, and in more traditional societies we also have tea, salt (etymology note: this is where the word "salary" comes from), seashells and the like.
• Commodity-backed money: banks issuing certificates that are valuable because they are redeemable for gold.
• The Fiat money: the money has value largely because the government issuing it accepts that money, and only that money, as payment for taxes and fees, alongside several other legal privileges.
• Factum money is simply a balance sheet, with a few rules on how that balance sheet can be updated, and that money is valid among that set of users which decides to accept it. Bitcoin is the first example.
• The main promise of factum money, in fact, is precisely the fact that it meshes so well with smart contracts.
• One example is a domain-name sale;  a domain, like google.com, is a factum asset, since it's backed by a abase on a server that only carries any weight because we accept it, and money can obviously be factum as well.
• Decentralized exchange is another example, and we can also do financial contracts such as hedging and leverage trading.
• Blockchains don't have any way of accessing the physical word.
• How will this be better than the current system?
• In a cryptographically enabled factum law system, being a judge simply requires having a public key and a computer with internet access.

On Silos
Ethereum blog
December 31, 2014

• Not only is fragmentation not bad at all, but rather it's inevitable, and arguably the only way that this space can reasonably prosper.
• Agree to disagree
• We fragment because we disagree.
• I consider Bitcoin's $600 million/year wasted electricity on proof of work to be an utter environmental and economic tragedy.
• I believe ASICs are a serious problem, and that as a result of them Bitcoin has become qualitatively less secure over the past two years.
• Some people see cryptocurrency as a capitalist revolution, others seee it as an egalitarian revolution, and others see everything in between.
• It will turn out that the properties of some systems are better suited for some applications, and other systems better suited for other applications, and everything will naturally specialize into those use cases where it works best.
• Cryptocurrency projects generally all build a blockchain, a currency, and a client of their own, although forking a simple client is common for the less innovative cases. Name-registration and identity-management systems are now a dime a dozen.
• Imagine identities being automatically transferrable across any crypto-networks, as long as they use the same underlying cryptographic algorithms (e.g., ECDSA + SHA3)

Superrationality and DAOs
Ethereum blog
January 23, 2015

• Given the established result from Machine Learning that much larger performance gains can be made by increasing the data size than by tweaking the algorithm.
• In the real world, many two-party prisoner's dilemmas on the small scale are resolved through the mechanism of trade and the ability of a legal system to enforce contracts and laws.
• Essentially, it is cognitively hard to convincingly fake being virtuous while being greedy whenever you can get away with it, and so it makes more sense for you to actually be virtuous.
• A virtuous strategy:
• 1. Try to determine if the other party is virtuous.
• 2. If the other party is virtuous, cooperate.
• 3. If the other party is not virtuous, defect.
• The common adage that you should never trust someone who doesn't drink.
• The internet does a great job of reducing information asymmetries and offering transparency.
• Online, we are much less "leaky" even as individuals, and so once again it is easier to appear virtuous while intending to cheat.
• Futarchy: various forms of democracy.
• The reason why organizations make themselves decentralized/leaky is so that others will trust them more, and so organizations that fail to do this will be excluded from the economic benefits of this "circle of trust".
• Anything related to information asymmetries falls squarely within the scope, and this scope is large indeed; as society becomes more and more complex, cheating will in many ways become progressively easier and easier to do and harder to police or even understand; the modern financial system is just one example. Perhaps the true promise of DAOs, if there is any promise at all, is precisely to help with this.

The value of Blockchain Technology
Ethereum blog
April 13, 2015

• Silk Road, the online anonymous drug marketplace that was shut down by law enforcement in late 2013, processed over $1 billion in sales during its two and a half years of operations, and while the payment-system-orchestrated blockade against WikiLeaks was in progress, Bitcoin and Litecoin donations were responsible for the bulk of its revenue.
• 
  
  
  In the long tail, blockchains are not necessary; they are convenient 
  
  
• A blockchain is a magic computer that anyone can upload programs to and leave the programs to self-execute, where the current and all previous states of every program are always publicly visible, and which carries a very strong crypto economically secured guarantee that programs running on the chain will continue to execute in exactly the way that the blockchain protocol specifies.
• Malboge : langage le plus difficile et le plus exotique
• Blockchains: they're about creating the freedom to create a new mechanism with a new ruleset extremely quickly and pushing it out.
• The currency is there simply as economic plumbing to incentivize consensus participation, hold deposits, and pay transaction fees, not as the center-stage point of speculative mania, consumer interest and excitement.
• Requiring a software update to pass through a public one-month waiting period.
• You can build applications that very easily and efficiently take advantage of the data produced by others applications. (Combining payments and reputation systems is perhaps the largest gain here)
• Blockchains are obviously valuable in finance, as finance is perhaps the most simultaneously computationally and trust-intensive industry in the world.
• ...making sure that these services are built correctly and that their governance process does not put a few private entities in position of extreme power is of utmost importance. Right now, many of these systems are built in a highly centralized fashion, and this is part simply due to the fact that the original design of the World Wide Web failed to realize the importance of these services and include defaults - and so, even today, most websites ask you to "sign in with Google" or "sign in with Facebook", and certificate authorities run into problems.
• An M-of-N system is one in which, for instance, ether are some number N keys to a lock and, of those, M keys are needed to unlock it.
• This concept of social multisignature backup is perhaps one of the most powerful mechanisms to use in any kind of decentralized system design, and provides a very high amount of security very cheaply and without relying on centralized trust.
• Identity is not the only problem that blockchains can alleviate. Another component, intimately tied up with identity, is reputation.
• A decentralized reputation system would ideally consist of two separate layers: data and evaluation.
• "Zero-knowledge" reputation systems that allow a user to provide some kind of cryptographic certificate proving that they have at least x reputation points according to a particular metric without revealing anything else are promising.
• The last forty years of software development has been a history of moving to progressively less and less efficient programming languages and paradigms solely because they allow developers to be less experienced and lazier.

PART 2: PROOF OF WORK

Why Cryptoeconomics and X-Risk researchers should listen to each other more
medium.com/atVitalikButerin
July 4, 2016

• Ralph Merkle, inventor of the now famous crytographic technology which undermines Etheneum's light-client protocol.
• Skype co-founder Jaan Tallinn
• The core problem of consensus asks how to incentivize validators to continue supporting and growing a coherent history using a simple algorithm that is set in stone, when the validators themselves are highly complex economic agents that are free to interact in arbitrary ways.
• Quadratic voting is a mechanism in which voters can vote with multiple tokens, but the more tokens one votes with, the less power each token has. It is a system that seeks to account for intensity of preference while counteracting a plutocracy by those who simply hold the most tokens.
• The biggest lesson to learn from the crypto community is that of decentralization itself: have different teams implement different pieces redundantly, so as to minimize the chance that an oversight from one system will pass through the other systems undetected.

A Proof-of-Stake design Philosophy 
medium.com/atVitalikButerin
December 30, 2016

• Systems like Ethereum, (and Bitcoin, and NXT, and BitShares etc...) are a fundamentally new class of crypto economic organisms- decentralized, juridiction-less entities that exist entirely in cyberspace, maintained by a combination of cryptography, economics and social consensus. They are kind of like BitTorrent, but they are also not like BitTorrent, as BitTorrent has no concept of state - a distinction that turns out to be crucially important. They are sometimes described as decentralized autonomous corporations, but they are also not quite corporations - you can't hard fork  Microsoft. They are kind of like open-source software projects, but they are not quite that either - you can fork a blockchain, but not quite as easily as you can fork OpenOffice.
• One well-known example is the maximalist vision of proof of work, where "the" correct blockchain, singular, is defined as the chain that miners have burned the largest amount of economic capital to create.
• BitShares' delegated proof of stake presents another coherent philosophy, where everything once again flows from one single tenet, but one that can be described even more simply: shareholders vote.
• Casper PoS is the algorithm designed to support Atheneum's conversion to proof of stake, using a betting system to prevent malicious actors.
• Cypherpunk philosophy is fundamentally about leveraging this precious asymmetry to create a world that better preserves the autonomy of the individual, and crypto economics is to some extent an extension of that, except this time protecting the safety and liveness of complex systems of coordination and collaboration, rather than simply the integrity and confidentiality of private messages. Systems that consider themselves ideological heirs to the cypherpunk spirit should maintain this basic property, and be much more expensive to destroy or disrupt than they are to use and maintain.
• The "cypherpunk" spirit" isn't just about idealism; making systems that are easier to defend than they are to attack is also simply sound engineering.
• On medium-to-long time scales, humans are quite good at consensus.
• Proof-of-work necessarily operates on a logic of massive power incentivized into existence by massive rewards.
• The "one-sentence philosophy" of proof of stake is thus not "security comes from burning energy", but rather "security comes from putting up economic value-at-loss".
• Economics is not everything.
• In Ethereum, "uncle blocks" are incomplete blocks not ultimately added to the main chain. Miners receive a reward for producing these, however - a kind of consolation prize for how their failed efforts contribute to the security of the system as a whole.

The Meaning of Decentralization
medium.com/atVitalikButerin
February 6, 2017

• Blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)
• Juan Bent from IPFS
• "Collusion" is coordination that we don't like.
• Can we really say that the uncoordinated-choice model is realistic when 90% of the Bitcoin network's mining power is well -coordinated enough to show up together at the same conference?

Scaling Bitcoin Conference

• Bitcoin's core developers generally speak English but miners generally speak Chinese can be viewed as a happy accident, as it creates a kind of "bicameral" governance that makes coordination more difficult.
• Decentralization as undesired-coordination avoidance, is thus perhaps the most difficult to achieve, and tradeoffs are unavoidable. Perhaps the best solution may be to rely heavily on the one group that is guaranteed to be fairly decentralized: the protocol's users.

Notes on Blockchain governance
vitalik.ca
December 17, 2017

• Explicit on-chain governance is typically touted as having several major advantages. First, unlike the highly conservative philosophy espoused by Bitcoin, it can evolve rapidly and accept needed technical improvements.
• While all blockchains offer financial incentives for maintaining consensus on their ledgers, no blockchain has a robust on-chain mechanism that seamlessly amends the rule governing its protocol and rewards protocol development. As a result, first-generation blockchains empower de facto, centralized core development teams or miners to formulate design choices.
• Generally speaking, there are two informal models of governance, that I will call the "decision function" view of the governance and the "coordination" view of the governance.
• The decision function view is often useful as an approximation.
• The coordination model of the governance, in contrast, see governance as something that exist in layers. The bottom layer is, in the real world, the laws of physics themselves (as a geopolitical realist would say, guns and bombs), and in the blockchain space we can abstract a bit further and say that it is each individual's ability to run whatever software they want in their capacity as a user, miner, stakeholder, validator, or whatever other kind of agent a blockchain protocol allows them to be. The bottom layer is always the ultimate deciding layer.

A Byzantine general rallying his troop forward. The purpose of this ins't just to make the soldiers feel brave and excited, but also to reassure them that everyone else feels brave and excited and will charge forward as well, so an individual soldier is not just committing suicide by charging forward alone.

• The use of this example is an ode to the Byzantine generals problem in game theory: A circle of armies surround Byzantium, and they all need to attack at the same time to win. If they lack a secure means of communicating with each other, how can they coordinate a simultaneous attack?
• Tightly coupled voting and loosely coupled voting are competitors in the governance-mechanism space.
• Low voter participation: One of the main criticisms of coin-voting mechanisms so that is that, no matter where they are tried, they end to have very low voter participation.
• Low voter participation means two things. First, the vote has a harder time achieving a perception of legitimacy, because it only reflects the views of a small percentage of people. Second, an attacker with only a small percentage of all. coins can sway the vote.
• All of these projects have founders or foundations with large premises, and these act as a large centralized actors that are interested in their platforms' success that are not vulnerable to bribes, and hold enough coins to outweigh most bribes attacks.
• Bitcoin, store-of-value ("holding") and medium-of-exchange use ("buying coffees") are naturally in conflict, as the store-of-value use case prizes security much more than the medium-of-exchange use case, which more strongly values usability;
• "" is a term of art in crypto lexicon that refers to someone furiously trying to type "hold" to keep others from selling when a token's price drops. It is a rallying cry most associated with price-focused traders; in the culture of Ethereum, the corresponding meme is "BUIDL", a call to respond to setbacks by building better, more usable tools.
• The leading alternative seems to be core-developer consensus, however the failure mode of a system being controlled by "ivory tower intellectuals" who care more about abstract philosophies and solutions that sound technically impressive over and above real day-t-day concerns like user experience and transactions fees is , in my view, also a real threat to be taken seriously.
• The approach for blockchain governance that I advocate is "multifactorial consensus", where different coordination flags and different mechanisms and groups are polled, and the ultimate decision depends on the collective results of all these mechanisms together.

On Collusion
vitalik.ca
April 3, 2019

• Incentivizing online content creation is something that very many people care about.
• Bribing attacks may sound farfetched (who here has ever accepted a bribe in real life?), but in a mature ecosystem they are much more realistic than they seem. In most contexts where bribing has taken place in the blockchain space, the operators use a euphemistic new name to give the concept a friendly face; : it's not a bribe, it's a "staking pool" that shares dividends".
• There is the possibility of a "negative bribe" (i.e., blackmail or correction)
• Gitcoin is a funding platform for building open-source software, particularly in the Ethereum ecosystem.
• Cooperative game theory.
• Majority games, formally described as game of n agents where any subset of more than half of them can capture a fixed reward and split it among themselves, a set eerily similar to many situations in corporate governance, politics, and other situations in human life, are part of that set of inherently unstable game.
• Identity-free and Collusion-safe game design.

On Free Speech
vitalik.ca
April 16, 2019

• Bitcoin is not a democracy. Not of miners, not of nodes. One of the greta things about Bitcoin is its lack of democracy.
• Governmental power is not the only kind of power that we need protection from.
• We have the Bitcoin community block-size schism, a highly acrimonious fork and chain split, and now a cold peace between Bitcoin and Bitcoin Cash.
• Craig Wright, a scammer claiming to be Satoshi Nakamoto.
• Online platforms such as Facebook, Twitter, and YouTube already engage in active selection through algorithms that influence what people are more likely to be recommended. Typically, they do this for selfish reasons, setting up their algorithms to maximize "engagement" with their platform.

Control as Liability
vitalik.ca
May 9, 2019

• Control over users' data and digital possessions and activity is rapidly moving from an asset to a liability.
• If you exhibit control over your users' cryptocurrency, you are a money transmitter.
• If you build a wallet where the user holds their private keys, you really are still "just a software provider".
• We're definitely very far from having explored the full range of possibilities that more decentralized approaches offer.
• What this trend in regulation does, however, is to give a big nudge in favor of those applications that are willing to take the centralization-minimizing, user-sovereignty-maximizing "can't be evil" route.
• The movement for minimizing needed centralization and maximizing users' control of their own assets, private keys, and data a surprisingly strong hand to execute on its vision.

PART 3: PROOF OF STAKE

• Crypto communities were experimenting with new kinds of governance and decision-making processes - voting systems that balance the power of tokens and people, identity systems based on relationships among users rather than their relationship to the state.

Credible neutrality as a guiding principle
NakamotoJanuary 3, 2020

• We are entering a hyper-networked, hyper-intermediated, and rapidly evolving Information Age, in which centralized institutions are losing public trust and people are searching for alternatives.
• "Credible neutrality": Essentially, a mechanism is credibly neutral if just by looking at the mechanisms design, it is easy to see that the mechanism does not discriminate for or against any specific people.
• Capitalism discriminates in favor of concentrated interests and the wealthy, and against the poor and those who rely heavily on public goods.
• Mechanisms such as blockchains, political systems, and social media are designed to facilitate cooperation across large, and diverse, groups of people.
• Most bits of information in the output should come from the participants' inputs, not from hard-coded rules inside the mechanism itself.

Coordination, Good and Bad
vitalik.ca
September 11, 2021

• Coordination can be improved in many ways: faster spread of information, better norms that identify what behaviors are classified as cheating along with more effective punishments, stronger and more powerful organizations, tools like smart contracts that allow interactions with reduced level of trust, governance technologies (voting, shares, decisions markets...)
• "collusion" to refer "undesired coordination"
• Evaluate intentions, not actions (!!)
• Decentralization as anti-collusion
• The blockchain experience shows how designing protocols is institutionally decentralized architectures can often be a very valuable thing.
• Forking as counter-coordination.
• There are two core operating principles that we can use to achieve this end: (1) supporting counter-coordination and (2) skin in the game.
• In digital systems such as blockchains (this could also be applied to more mainstream systems - e.g. DNS), a major and crucially important form of counter-coordination is forking.
• The domain name system is one component of the internet, which is otherwise quite decentralized, that is centralized. The early blockchain project Namecoin sought to provide a decentralized replacement. The Ethereum Name Service does this within the Ethereum ecosystem, using domain that end in .eth.
• Another class of collusion-resistance strategy is the idea of skin in the game.
• Markets are in general very powerful tools precisely because they maximize skin in the game.

Prediction markets: Tales from the election
vitalik.ca
February 18, 2021

• Futarchy: la futarchie est une forme de gouvernement dans laquelle les élus définissent les mesures du bien-être national et les marchés de prédiction sont utilisés pour déterminer quelles politiques auront l'effet le plus positif.
• And as Augur and Omen, and more recently Polymarket, have shown, prediction markets are a fascinating application of blockchains.
• I saw more and more arguments from Very Smart People whom I respected arguing that the markets were in fact irrational and I should participate and bet against them if I can.
• The heuristic that if a viewpoint seems clever and contrarian then it is likely to be correct.
• I decided to keep my ETH price exposure the same by opening up a Collateralized Debt Position (CDP, now also called a "vault") on MakerDAO.
• A CDP is how all the DAI is generated: users deposits their ETH into a smart contract, and are allowed to withdraw an amount of newly-generated DAI up to two-thirds of the value of ETH that they put in. They can get their ETH back by sending back the same amount of DAI that they withdrew plus an extra interest fee (currently 3,5%). If the value of the ETH collateral that you deposited drops to less than 150% the value of the DAI you withdrew, anyone can come in and "liquidate" the value, forcibly selling the ETH to buy back the DAI and charging you a high penalty. Hence, it's a good idea to have a high collateralization ration in case of sudden price movements.
• Capital costs: the inconvenience and opportunity cost of locking up large amounts of money.
• Many people (and smart people in particular) have a pathology that they suffer from excessive humility, and too easily conclude that if no one else has taken some action, then there must therefore be a good reason why the action is not worth taking.
• We should be much more willing to act on the results of our reasoning, even when the result suggests that the great majority of the population is irrational or lazy or wrong about something.
• When I had originally started working on Ethereum, I was at first beset by fear that there must be some very good reason the project was doomed to fail.
• "The best lack all conviction, while the worst are full of passionate intensity" Yeats.
• It seems clear to me that spreading a society-wide message that the solution is to simply trust the existing outputs of the society, wether those come in the form of academic institutions, media, governments, or markets, is not the solution. All of these institutions can only work precisely because of the presence of the individuals who think that they do not work, or who think that they can be wrong some of the time.
• The conclusion is clear: when decisions are close and when there is a lot of noise, it turns out that it only makes sense to invest a small portion your money in a market.
• We should be wary of assuming that futarchy will propel us to new heights of decision-making accuracy.
• Crypto is a young ecosystem. It is an ecosystem that is still quite disconnected from the mainstream.

Over time, participants that are good at making correct guesses will come to dominate the ecosystem.

• Trial-by-first-test.

The most important scarce resource is legitimacy
vitalik.ca
March 23, 2021

• Bitcoin-ecosystem R&D is largely funded by companies (with $250 million raised so far), and about fifty-seven employees.
• The organisms that are the Bitcoin and Ethereum ecosystems are capable of summoning up billions of dollars of capital, but have strange and hard-to-understand restrictions on where the capital can go.
• Ethereum Classic is the branch of the Ethereum blockchain that did not adopt the "hard fork" and erase the 2016 hack of The DAO. Before that event it is the same as Ethereum; after the event it diverges.
• ENS is the Ethereum Name Service, the registrar for .eth domains widely used in the Ethereum ecosystem. A "root multisig" is an Ethereum wallet that controls a particular contract, in this case the contract governing the ENS system.
• The two largest parts of an NFT's value are (i) pride in holding the NFT and ability to show off your ownership, and (ii) the possibility of selling it in the future. It's really important that whatever NFT you buy is recognized as legitimate by everyone else.
• There is little appetite in the Ethereum community for enriching a small group of early adopters.
• An interesting case study is the case of Tether vs. DAI. Tether has many scandals, but despite this, traders use Tether to hold and move around dollars all the time. The more decentralized and transparent DAI excels is applications: Augur uses DAI, xDAI uses DAI, PoolTogether uses DAI, zk.money plans to use DAI, and the list goes on. What dapps use USDT? Far fewer.

Against overuse of the Gini coefficient
vitalik.ca
July 29, 2021

• The Gini coefficient (also called the Gini index) is by far the most popular and widely known measure of inequality, typically used to measure inequality of income or wealth in some country, territory or other community.
• Wealth concentration within the blockchain space in particular is an important problem, and it's a problem worth measuring and understanding. It's important fro the blockchain space as a whole as many people (and US Senate hearings) are trying to figure out to what extent crypto is truly anti-elitist and to what extent it's just replacing old elites with new ones.
  
  Share of coins explicitly allocated to specific insiders in a cryptocurrency's initial supply is one type of inequality
  
  
• An internet community measured inequality can come from two sources: (i) inequality in total resources available to different participants, and (ii) inequality in level of interest in participating in the community.
• log(x) is popular because it captures the intuitively appealing approximation that doubling one's income is about as useful at any level: going from $10,000 to $20,000 adds the same utility as going from $5,000 to $10,000 or from $40,000 to $80,000.
• For cryptocurrency communities - where concentration of the resources is one of the biggest risk to the system, but someone having only 0.00013 coins is not any kind of evidence that they're actually starving - adopting indices like this is the obvious approach.

Moving beyond coin-voting governance
vitalik.ca
August 16, 2021

• Ethereum continued developing harmoniously because of strong legitimacy of its pre-existing road map (basically: "proof of stake and sharing"), and sophisticated application-layer projects that required anything more did not yet exist.
• Daily mining issuance rewards from Ethereum are about 13,500 ETH, or about $40million, per day.
• Was Bitcoin really a fair launch considering how few people had a chance to even hear about it by the time one-fourth of the supply had already been handed out by the end of 2010?
• RAI is stable coin (unlike DAI and USDT) is not pegged to a "fiat" currency like the US dollar. It seeks greater stability while still being reflective of changes in the underlying crypto markets.
• They are two primary types of issues with coin voting that I worry about: (i) inequalities and incentive misalignments even in the absence of attackers, and (ii) outright attacks through various forms of (often obfuscated) vote buying.
• Small group of wealthy participants ("whales") are better at successfully executing decisions than large groups of small-holders: this is because of the tragedy of the commons among small-holders: each small-holder has only an insignificant influence on the outcome, and so they have little incentive to not be lazy and actually vote.
• Can crypto protocols be considered public goods if ownership is concentrated in the hands of a few whales?
• A token in a protocol with coin voting is a bundle of two rights that recombined into a single asset: (i) some kind of economic interest in the protocol's revenue and (ii) the right to participate in governance. This combination is deliberate: the goal is to align power and responsibility. But in fact, these two rights are very easy to unbundle from each other.
  
  
  
  
  
• Proof of Personhood: see Proof of Humanity and BrightID.
• Proof of Participation: see POAP. There are also two hybrid possibilities: one example is quadratic voting, which makes the power of a single voter proportional to the square root of the economic resources that they commit to a decision.
• Skin in the Game: Coin voting fails because while voters are collectively accountable for their decisions (if everyone votes for a terrible decision, everyone's coins drop to zero), each voter is not individually accountable (if a terrible decision happens, those who supported it suffer no more than those who opposed it). Can we make a voting system that changes this dynamic, and makes voters individually, and not just collectively, responsible for their decisions?
• The most important thing that can be done today is moving away from the idea that coin voting is the only legitimate form of governance decentralization.

Trust models

vitalik.ca

August 20, 2021

• One of the most valuable properties of many blockchain applications is trustlessness: the ability of the application to continue operating in an expected way without needing to rely on a specific actor to behave in a specific way even when their interests might change and push them to act in some different, unexpected way in the future.
• A blockchain with a few miners or validators dominating the network is much less interesting than a blockchain with its miners or validators widely distributed.
• Trusting that one particular person (or organization) will work as expected is very different from trusting that some single person anywhere will do what you expect them to do.
• In blockchains, the two most common types of failure are liveness failure and safety failure. A liveness failure is an event in which you are temporarily unable to do something you want to do. A safety failure is an event in which something actively happens that the system was meant to prevent (e.g., an invalid block gets included in a blockchain)
• ZK Rollup: no safety-failure risks.
• ZK Rollup (with light-withdrawal enhancement): no liveness-failure risks; no safety-failure risks.

Crypto cities
vitalik.ca
October 31, 2021

• Many national governments around the world are showing themselves to be inefficient and slow-moving in response to long-running problems and rapid changes in people's underlying needs. In short, many national governments are missing live players.
• Using blockchains to create more trusted, transparent, and verifiable versions of existing processes.
• Using blockchains to implement new and experimental forms of ownership for land and other scarce assets, as well as new and experimental forms of democratic governance.
• Blockchain-based systems are efficient in a way that paper is not, and publicly verifiable in a way that centralized computing systems are not - a necessary combination if you want to make a new form of voting that allows citizens to give high-volume real-time feedback on hundreds or thousands of different issues.
• The idea of governments creating a white-listed internal-use only stable coin for tracking internal government payments.
• Voting could be done on-chain: sophisticated solution combining blockchains, zero-knowledge proofs, and other cryptography is needed to achieve all the desired privacy and security properties.
• There is an inevitable political tension between a home as a place to live and a home as an investment asset.
• Twenty-first-century digital democracy through real-time online quadratic voting and funding could plausibly do a much better job than twentieth-century democracy, which seems in practice to have been largely characterized by rigid building codes and obstruction at planning and permitting hearings.
• Transactions fees are expected to quickly decrease very soon from rollups and sharding.
• If strong privacy is required, blockchains can be combined with zero-knowledge cryptography to give privacy and security at the same time.

Soulbound
Vitalik.ca
January 26, 2022

• A soulbound item, once picked up, cannot be transferred or sold to another player.
• NFTs in their current form have many of the same properties as rare and epic items in a massively multiplayer online game. They have social signaling value: people who have them can show them off, and there are more and more tools precisely to help users to do that. Very recently, Twitter started rolling out an integration that allows users to show off their NFTs on their picture profile.
• But what exactly are these NFTs signaling? Certainly, one part of the answer is some kind of skill in acquiring NFTs and knowing which NFTs to acquire. But because NFTs are tradable items, another big part of the answer inevitably becomes that NFTs are about signaling wealth.
• But what if we want to create NFTs that are not just about who has the most money, and that actually try to signal something else?
• Perhaps the best example of a project trying to do this is POAP, the “proof of attendance protocol”. POAP is a standard by which projects can send NFTs that represent the idea that the recipient personally participated in some event.
• They are interested in whether or not you personally attended that event.
• There is a large and under-explored design space of what non-transferable NFTs could become.
• There are very bad things that can easily happen to governance mechanisms if governance is easily transferable.
• Proverb: “Those who most want to rule people are those least suited to do it”.
• So what if we try to make governance rights non-transferable?
• What if DAO governance of blockchain protocols could somehow make governance power conditional on participation?
• Perhaps the one NFT that is the most non-transferable today is Proof of Humanity attestation.
• Proof of Humanity is a project designed to establish unique human identities on a blockchain without relying on central authorities such as governments or corporations. It is used by other crypto projects that need to confirm the personhood of participants.
• Proof of Humanity profiles are de facto soulbound, and infrastructure built on top of them could allow for on-chain items in general to be soulbound to particular humans.
• Cryptographically strong privacy for transferable items is fairly easy to understand: you take your coins, put them into tornado.cash or a similar platform, and withdraw them into a fresh account.
• Whereas normally a blockchain like Ethereum publishes the senders and recipients of all transactions, Tornado Cash is a protocol that enables private transactions by masking the link between sender and receiver.
• Merkle trees are a cryptographic technique, central to the design of Ethereum, used to verify that a set of data has not been tampered with. A Merkle branch is part of such a tree. 
• ZK-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge”. It is a technique for providing cryptographic evidence that a party holds certain information without revealing what that information is.
• A common criticism of the “web3” space as it exists today is how money-oriented everything is.
• Making more items in the crypto space “soulbound” can be one path toward an alternative, where NFTs can represent much more of who you are and not just what you can afford.
• However, there are technical challenges to doing this, and an “uneasy interface” between the desire to limit or prevent transfers and a blockchain ecosystem where so far all the standards are designed around maximum transferability. Attaching items to “identity objects” that users are either unable (as with Proof of Humanity profiles) or unwilling (as with ENS names) to trade away seems like the most promising path, but challenges remain in making this easy to use, private and secure. We need more effort on thinking through and solving these challenges. If we can, this open a much wider door to blockchains being at the center of ecosystems that are collaborative and fun, and not just about money.