Vitalik Buterin didn't exactly "write" this book, instead it's a curated selection of essays from his extensive online writings. And if you're new to cryptocurrencies, I would suggest reading a few other books[1] first before tackling this one, as this book is geared to someone already comfortable with Bitcoin, who knows what a smart contract is, etc. If you're at least an advanced beginner with cryptocurrencies, this book will make sense to you.
With those mini-caveats out of the way, Proof of Stake offers readers a chance to mine Vitalik's galaxy brain for insights across an astonishingly wide range of topics: on seigniorage value, on problems of anonymity/identity, on various blockchain schelling points, on trust, on governance, on collusion, on theories of legitimacy, on what the term "decentralization" really means, on how to think like a malicious actor so you can anticipate attacks, on the philosophical views underpinning proof-of-stake security systems[2] and many others. It's staggering that Buterin was only in his teens and twenties when he wrote most of these essays, and of course he was only 19 (!) when he first published the Ethereum whitepaper.
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This book is particularly interesting in light of Buterin's current struggles to hand off leadership of the Ethereum Foundation, a process that appears to be unsettling both for him and for the greater Ethereum community.
It is intriguing to note how frequently Vitalik uses the phrase "applications that have nothing to do with money at all." Variations of this phrase show up in the Ethereum white paper repeatedly, as well as in many of his essays. It highlights the considerable philosophical differences between Ethereum groupies and Bitcoiners. For the latter, the goal (the only goal for toxic maximalist Bitcoiners) is a hard, non-debasable, permissionless store of value with a clear, fixed and unchanging monetary policy--the 21 million hard cap--that can be a lifeboat to safety for anyone from a phony, debased fiat monetary world. But the reader gets the impression that Vitalik is uncomfortable with money somehow, or that solving the problem of broken fiat money just isn't all that interesting to him, especially compared to all the other problems out there that he thinks public blockchains can solve. Ironically, the act of creating Ethereum made him preposterously rich.
One last takeaway: write and post your thoughts. It's an exercise that adds tremendous value to your life, as it helps you formulate, organize, remember and build upon your thoughts such that they form a coherent whole.
Footnote:
[1] Start with Nathaniel Popper's Digital Gold, then read Ben Mezrich's Bitcoin Billionaires, then read Saifedean Ammous' The Bitcoin Standard. then read Gigi's very short and sweet book 21 Lessons. You'll then know more about Bitcoin than 90% of people.
[2] Obviously, anyone claiming to know anything about Bitcoin must be conversant in the steelmanned argument for proof-of-stake vs proof-of-work. This book helps you have command of it.
My favorite Vitamin Butane meme
[Readers, as always, value your lives and your time and read no further! Below is a long list of my notes and reactions to the book, they are there to help me order and remember what I read. It might be worth skimming the bolded parts.]
Notes:
Partial Ethereum timeline:
2011: Buterin writes on an online forum asking if anyone would pay him in Bitcoin to write about it; he goes on to co-found Bitcoin Magazine.
2013 Buterin at age 19 (!) publishes the Ethereum white paper; Ethereum does a funding raise, raising $18 million in Bitcoin, and issuing "pre-mined" tokens to investors/founders before the blockchain went live.
2015 Ethereum goes live, the genesis block was July 30th.
2016 The infamous DAO hack, where a hacker stole the Ethereum Foundation's tokens, representing about 15% of the entire ETH supply. The chain was hard-forked to deal with the problem.
2016 The Geth-Parity consensus failure of November 25th, 2016.
2017 ETH increases significantly in value during the ICO era.
2020 COVID and stimmy payments lead to a huge alt-season in shitcoins.
2021 Ethereum enables staking as part of its migration from proof of work to proof-of-stake.
Part 1: Premining
Markets, Institutions, and Currencies--A New Method of Social Incentivization (2014)
17ff this article posits currencies as a third form of incentive creation; markets and institutions as the two major categories until now.
18-19 An interesting insight here that helps me see, finally, that it's probably not worth owning shares of Bitcoin mining stocks; Vitalik here talks about gold mining, which can earn certain miners a profit, but if the industry becomes in any way competitively efficient, the cost of production will eat away at returns, and I think you can make the very same argument for Bitcoin mining: it is very asset-intensive, the assets (PoW mining rigs) have a relatively short lifespan, this means these companies will likely always be heavily capital intensive, nearly the opposite of what Buffett would call a "wonderful business."
19-20 On the launch of Primecoin, which required miners to find Cunningham chains of prime numbers, thus this supported a category of scientific computation as its source of proof of work. On the launch of Dogecoin, a clone of Litecoin except for the maximum supply was 100 billion instead of 84 million.
22 Thoughts and notions on "seigniorage value" and how with a cryptocurrency it can be directed to certain causes; it's very efficient to extract because the underlying currency has no intrinsic value; the value doesn't go directly to a government or to a king like with traditional currencies, etc. [It's astounding, literally astounding, that Buterin wrote this at age 20. I couldn't bring myself to think outside the water of the US dollar even during my Wall Street career, until my late 40s I had very little command of monetary history, etc.]
24 "...we may well see thousands of cryptocurrencies being actively circulated around the internet."
Ethereum: A Next-Generation Cryptocurrency and Decentralized Application Platform (2014)
26ff Announcing Ethereum; understanding layers; on the idea of BTC as analogous to the TCP/IP layer for the internet; on Mastercoin and Counterparty, both built on metadata in Bitcoin blocks; on the idea that Bitcoin can't handle these tasks.
28ff On "contract for difference" which is a standard contract form on top of a cryptocurrency layer that you might see in liquidity pool for example; other examples of things you can do with Ethereum scripting like multi-signature escrows,, gambling, creating your own currency, etc.; also various governance structures where you can envision a type of democracy or a DAO that would move funds or execute a contract with a certain number of signatures: say, for example, at least 30 or more of the 60 shareholders of a company, etc.
32ff On other possible applications like filesharing/data storage with incentives, also encrypted messaging.
37ff Vitalik goes through the upcoming funding and launch of Ethereum: the white paper was already out by the time this article came out, but then the plan involves an offering of 1,000 ETH for one Bitcoin; with early investors getting half that price; there was a block of ETH allocated to early contributors with a lockup vesting over 3 years; and then there was another equal portion allocated to a long-term reserve pool; basically about 45% of the ETH in the initial offering was allocated to contributors and the foundation (!) [this was self-evidently a security upon launch]. Note also that Ethereum was initially planned with no token supply hard cap [in other words there would be an unlimited token supply], this was later changed.
Self-Enforcing Contracts and Factum Law (2014)
41ff This article discusses smart contracts, "a contract that enforces itself"; see Nick Szabo's example of a vending machine [great analogy!]; on how these contracts are enforced; discussion of "smart property": for example a car that you could rent for a day given a private key on a smartphone and "if that sounds farfetched" think about how "office buildings are largely smart property already" with access controlled by key cards, access granted by code linked to a database, etc.
45ff Sidebar on factum money [money "in fact" or money that "just is"] like Bitcoin, which is necessary to mesh with smart contracts [you need something to use to make the contract payment itself that can be executed within the contract, and not require some external legal or police force to enforce it]; finally musings on the nature of a judge, in both the regular world, but also in a smart contract world, where the judge simply needs a public key and access to a computer to broadcast to the blockchain.
On Silos (2014)
51ff Discussion of the fragmentation that cryptocurrency is experiencing, Vitalik's thesis here is that it's not only inevitable, it's a really good thing.
53ff "We fragment because we disagree." What follows here is a list of some of Vitalik's claims which depart from many Bitcoiners': for example, he thinks the electricity use for Bitcoin is an environmental tragedy, he thinks that the fact that ASICs are used in Bitcoin mining makes Bitcoin less secure; he believes in inherently flexible monetary policies, albeit never centralized, etc.
57ff Vitalik likens cryptocurrency projects to software languages, where few programmers will use just one language exclusively; you use the platform that's best fit for the use case for which you're building. Later there's a discussion of certain subdomains that can be shared across these different projects to obtain more scalability.
Superrationality and DAOs (2015)
63ff This essay asks "what are DAOs good for?"
64ff Extended discussion of different forms of the prisoner's dilemma problem; then looking to how humans are "leaky" in the sense that we "indirectly expose parts of our source code" by having tells, acting differently when we intend to deceive or act non-virtuously [this is a useful insight and it's well put: "humans are leaky"]; on "superrational cooperation" which allows people to be honest to each other even when there are incentives to not be; Vitalik notes that in the modern era of large centralized organizations we interfere with our ability to see people face to face in a way to interpret their likely actions.
71 On how the internet reduces information asymmetries, but also it can make us much less "leaky" as individuals online. This is why scams are more common online and in cryptocurrency.
72ff On DAOs, which are completely public, in other words they're totally leaky, so "outsiders can see the organization's entire source code. ...it's not even possible for the organization's 'mind' to cheat."
74 "...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. [Note that Vitalik was 21 when he wrote this, with a level of insightfulness far beyond anything I could have possibly had at that age] Perhaps the true promise of DAOs, if there was any promise at all, is precisely to help with this."
The Value of Blockchain Technology (2015)
75 What are blockchains even useful for, what should be done on blockchains, is there a killer app, and related questions.
76 Buterin argues that if there were a killer app it would have been found already; he thinks except for things like censorship resistance, there isn't really a killer app for blockchains. Another use case is payment protocols for censored or financially deplatformed individuals or organizations; discussion of a long tail of beneficiaries to blockchain systems. [Note here that a Bitcoin maximalist would say the killer app is Bitcoin as a non-debasable, teleportable, uncensorable, cryptographically secure and self-custodied store of value.]
79ff He gives a definition of a blockchain ["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 cryptoeconomically secured guarantee that programs running on the chain will continue to execute in exactly the way that the blockchain protocol specifies."], noting that his definition does not discuss ledgers, money or transactions; this is quite an interesting definition, he uses it so that it's conceptually useful for any software developer to think about its value proposition.
81ff Quick summary of why blockchains are useful: you can store data on them and have that data be easily available; you can run applications on them and be guaranteed uptime as well as have uptime far into the future; those applications that can be shown to be honest will remain working even if you stop maintaining them; you can have an organization with a backdoor key with specific constraints or rules; it can communicate with other applications; it can use data produced by other applications (here an example would be to think of a payment and reputation system combined).
82-3 On Gavin Wood's description of the world computer: a computer the state of which is shared among everyone, which anyone is free to join, and a large group of people can use or maintain.
83ff Discussion of a "base layer"; examples/analogies like language or the road system or the legal system; also telephone networks or the internet; and in the modern era things like domain name systems or cloud computing systems.
85ff On dealing with other blockchain-related problems having to do with identity, for example if you lose your key a solution would be keeping your key in shards such that any single shard can help you recover it using "secret-sharing math"; or even more simply M-of-N backup [essentially multisig] using say 5 of 8 trusted entities--note that Vitalik talks about Ethereum allowing a contract that would maintain the current key and backup keys associated with an identity that would be something you could easily program.
89ff On cutting costs: "the per-transaction gain from using a blockchain is very small."; centralized platforms enable almost zero cost per transaction; decentralized platforms can have higher fees, but there are methods of making consensus cheaper. See proof-of-stake systems or Layer 2 systems, etc.
Part 2: Proof of Work
Why Cryptoeconomics and X-Risk Researchers Should Listen to Each Other More (2016)
97ff Discussion here of people interested in using blockchain protocols to solve governance problems or help with prediction markets or global coordination problems; when the underlying problem is the underlying "dumb system" with inflexible properties. Example here would be an AI trying to cure cancer but [hopefully!] not solving it by just killing everyone or freezing everyone; on maintaining validator incentives with a blockchain, where you have a "dumb" algorithm but yet very intelligent and diverse agents operating it.
99ff On interim solutions like a DAO with curators who have limited powers: enough to rescue it from an attack but not enough to unilaterally carry out an attack. The idea is slowing things down so you can respond to an attack and either reverse or hard fork it; you can here use time to demonstrate/indicate honesty.
99 Interesting concept here of quadratic voting, where you can vote with multiple tokens but the more tokens you have less power each token has, this is to limit the power of plutocracy or whales.
101 See the article "The Hour I First Believed" by Scott Alexander on Slate Star Codex.
101 Also on the decentralization of people in the crypto community: "I would argue that 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." [In other words the "Swiss cheese" risk model.]
A Proof-of-Stake Design Philosophy (2016)
103ff Vitalik explains his personal philosophy of proof-of-stake protocols; discussion of the truth of cryptography that is much easier to defend than attack, even against a state-level actors; that these systems should maintain this basic property going forward.
106 On proof of work requiring massive power, incentivized into existence by massive rewards. Vitalik says that this "kills trees" and worse there's no "defender's advantage" as the cost of attack and cost of defense are 1:1. [I don't want to argue with a galaxy brain but I'm not sure this is true.] He argues that proof of stake breaks the symmetry by penalizing a bad actor for much more value than the rewards of attacking: "security comes from putting up economic value-at-loss." Example here of the Geth-Parity consensus failure of November 25th, 2016: "Two days later, the blockchain and community are back on track, attackers are $50 million poorer, and the rest of the community is likely richer since the attack will have caused the value of the token to go up due to the ensuing supply crunch. That's attack/defense asymmetry for you."
The Meaning of Decentralization (2017)
111ff The top epithet in this world is calling another chain or proposal "centralized," even though there is no real clear definition of "decentralized."
113ff Three types of decentralization: architectural (how many physical computers make up a system and how many can break down and yet have the system still work?), political (how many individuals or organizations control those computers?), and logical (are the interface and data structures monolithic or swarm? If you cut everything in half will both halves still continue to fully operate?). Interesting graphic here on these ideas:
115ff Reasons why decentralization is useful: fault tolerance, attack resistance, collusion resistance. Note that governments and corporations collude all the time to benefit themselves at the expense of less well-coordinated citizens, customers or employees.
116ff Some nuances on this: with fault tolerance you can still have "common mode failure" like you can have lots of jet engines on a plane but they can all have the same defect. Similar example with a blockchain: the client software could have a bug, or the majority of mining hardware is built by the same company and can thus be coerced to install a backdoor; or, in an example of a proof-of-stake blockchain: 70% of the coins are held at one exchange [thus the exchange holds the keys and can easily act maliciously].
119ff Interesting point here about attack resistance, which per Vitalik favors proof-of-stake, because computer hardware (like mining rigs) are easy to detect, regulate and attack, "whereas coins can be much more easily hidden."
120ff Nuances on collusion: a pretty hilarious comment here where Vitalik writes "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?" along with a photo of all the miners sitting together in a row on a conference stage. [You have to admit he's right! At least at that time: I'd assume Bitcoin mining is much more distributed now than several years ago.] On distinguishing between harmful coordination and beneficial coordination (Vitalik gives as an example of beneficial coordination the Ethereum community spirit). [It is worth noting here that the "Ethereum community spirit" doesn't have all that much "community spirit" right now: it just goes to show how things can change radically over time, and something that looks like it works may not be as robust as you think it is.]
Notes on Blockchain Governance (2017)
123ff Comments on the resurgence of on-chain coinholder voting on chains like Tezos or EOS; On some of the liabilities of informal decentralized and structureless governance; on the how very informal hierarchies tend to spontaneously arise in online communities.
128ff "The key questions of governance thus become:
* What should layer 1 be? That is, what features should be set up in the initial protocol itself, and how does this influence the ability to make formulaic (ie. decision-function-like) protocol changes, as well as the level of power of different kinds of agents to act in different ways?
* What should layer 2 be? That is, what coordination institutions should people be encouraged to care about?
130ff On "loosely coupled voting" (example: rolling out new implementation and giving a green flag to encourage everyone to download it) contrasted with "tightly coupled voting" (which automatically produces a hard fork update). Nuances here on low voter participation: see for example the carbon vote on ethereum which had a 4.5% participation rate; also wealth distribution (across token holders) is unequal, which also affects voting [I definitely saw this with the Miamicoin protocol during the winddown and death of this protocol as a few whales drove all the voting results]; Also note that low participation means that a given vote is less legitimate and also an attacker with only a small percentage of coins can sway a vote.
132ff On bribe attacks, which have occurred with the Lisk chain; also on how blockchains with large pre-mines are less vulnerable to bribes and usually hold enough coins to outweigh most bribe attacks, and are theoretically highly likely to act in the platform's interest and success, but this is also a type of centralization unfortunately.
133 Very interesting quote here: "Exchanges profit from chaos": there are ramifications here in a lot of domains; think about an equity exchange during a period of massive buying or selling; think of Coinbase's financials during any period of fear or bullishness or bearishness; also on misalignments when exchanges hold a lot of coins: the exchange's interests will at times be misaligned with both token holders and token users.
135 Note also that coin holders are only one class of user; they may have interest to collude with those of others; see for example when Bitcoin had a "store of value" community versus a "medium of exchange" community [what he means here is the big blockers vs the small blockers and their civil war, wonderfully told in Jonathan Bier's The Blocksize War]; Vitalik says that with Ethereum this "conflict is even worse, as there are many people who use Ethereum for reasons that have nothing to do with ether."
137ff Discussion of the voting on Ethereum's gas limit; Buterin shows a chart of this next to a chart of the top marginal tax bracket rate in the United States across time. "Basically, they both look like magic numbers that are created and repeatedly renegotiated by a fairly centralized group of guys sitting together in a room." [Heh, yep.]
139ff On a constitution to mitigate bad governance algorithms; basically norms about protocol properties that are enshrined in the core properties of that protocol; Vitalik gives examples of how to violate them indirectly, like with a soft fork forcing a mandatory transaction fee based on time (which would be a deflationary force), or implementing another currency that was forced to be in fungible with Bitcoin, etc., both of these are protocols that could be theoretically put in place. He thinks that these decisions are better made on a layer 2 where you can have norms with coin voting, all sitting on top of a much robust and stable layer 1 bedrock.
140 A very interesting quote, another one, from Slate Star Codex: "The rookie mistake is: you see that some system is partly Moloch [ie. captured by misaligned special interests], so you say "Okay, we'll fix that by putting it under the control of this other system. And we'll control this other system by writing ‘DO NOT BECOME MOLOCH' on it in bright red marker." ("I see capitalism sometimes gets misaligned. Let's fix it by putting it under control of the government. We'll control the government by having only virtuous people in high offices.") [It took me forty years to understand this about my own government!]
141ff On "coordinated flags" including a protocol having a public roadmap (which is basically ideas broadcasted earlier on the project's direction); other examples of coordinated flags could be a consensus among core developers; coin holder and user votes; also that protocol's established norms.
142 On sybil-resistant signals (a sybil attack is where someone undermines a system by posing as multiple users); with coin votes you can't do this.
On Collusion (2019)
143ff Discussion of a couple different token mechanisms used to reward quality social media posts: one on Reddit where they awarded donut tokens, but then a discussion of how these systems are vulnerable to attack, via self-voting (this is dealt with by tweaking the formula for rewards), plutocracy, and bribes.
148ff On how easy it is to purchase zillions of identities from organizations that sell tens of thousands of Gmail userids or other account IDs; see also clickfarms used to generate fake engagement, etc; this can even be done at the nation-state level; criminal organizations are way ahead of everyone on this.
150ff On cooperative game theory, a sub-domain of game theory where coalitions can work together; corporate governance and politics are both huge situations that are normally inherently unstable but can easily be co-opted by a 51% coalition to seize control and take all the resources, later to be replaced by some other 51% coalition. [This is a structural problem obviously with democracy, and I think you can easily argue that pseudo-democracies like Canada, the EU, probably the USA too, are all in a type of corrupt shelling point due to large coalitions controlling outcomes at various levels: either via controlled candidates or controlled primaries, control of the admistrative bureaucracy, etc.]
152ff On futarchy-based systems, based on prediction markets usually with money at stake; for example where you could be penalized by being obligated to purchase some quantity of tokens if a vote wins or loses, or some other system to ensure that voting on a bad decision is costly; this precludes bride attacks, or at least makes them very costly; one problem here is it's difficult to have a price signal for many things, sometimes prices are noisy, sometimes you can't reduce a complex signal down to say a token price.
155 "Any mechanism that can help genuinely under-coordinated parties coordinate will, without the right safeguards, also help already coordinated parties (such as many accounts controlled by the same person) over-coordinate, extracting money from the system." Note applications here in information markets or in examples we've seen recently of social media manipulation by centralized actors like governments.
On Free Speech (2019)
[This is a weak essay, quite below the standard of the rest of the writings in this collection]
161 Vitalik frames up some of his norms for free speech, discussing what it really stands for; distinguishing between government censorship and censorship in more private domains like on a Reddit forum: see for example Theymos, who began heavily moderating the Bitcoin subreddit /r/Bitcoin [note this also came up in The Blocksize Wars over the extraordinarily vicious debate about Bitcoin block size]; one argument here is that "this is a private forum therefore he can censor what he wants."
164 On the idea of a safe space being used as a weapon to force people to conform to norms as opposed to the more benign idea of defending freedom of association.
166ff Vitalik publicly shouts down Craig Wright at The Distributed Economy conference in Korea, saying "why is this fraud allowed to speak at this conference?" and then was criticized by Craig Wright's partisans for... censorship. [I can't help but ask: how can someone like Craig Wright actually have partisans, then and especially now? Don't they second-order think and recognize how foolish and gullible it makes them appear?]
168ff Various comments here on exchanges deciding to support or not support a token.
Control as Liability (2019)
171ff On early 2000s mass data gathering; the countermovement in privacy laws and data-localization rules [data gathered in a country must remain stored there], etc.. leading Vitalik to argue that "control over users' data and digital possessions and activity is rapidly moving from an asset to a liability." [This sounds like how British colonial possessions morphed over time from an asset to "a predicament" in Correlli Barnett's The Collapse of British Power.]
174 The cheat code for builders here is: don't centralize, don't collect data, don't control components of the system you build, etc. Ironically Vitalik thinks it's a positive unintended benefit of regulation: people will respond to it by building more decentralized platforms. It's "even more pro-cypherpunk... And it would be highly beneficial to the movement to take advantage of it."
Christmas Special (2019)
177 This is a playful post where Buterin lists some games, like 1.58 dimensional chess ("it's an interesting exercise and showing how in lower dimensional spaces defense becomes much easier than offense"), three dimensional tic-tac-toe, modular tic-tac-toe etc.
How a-bout a ga-ame of 1.58-dimensional chess?
Part 3: Proof of Stake
Credible Neutrality as a Guiding Principle (2020)
190 Interesting and disturbing quote here: "In my view, it is genuinely a mistake to treat carbon taxes as statist interventionism while treating government enforcement of property rights has just enforcement of natural law." (???)
190ff On the importance of credible neutrality in mechanisms with high stakes outcomes; a "mechanism" here is an algorithm plus incentives, like the mechanism of private property and trade, or auctions, or democracy, or blockchain-awarded incentives.
192ff What is credible neutrality? Look at any mechanism and you should be able to easily see that it does not discriminate for or against anyone.
194 On having a game theoretic concept of legitimacy, where the neutrality of a mechanism is very easy to see even in the face of hostile propaganda, or to people who don't understand something like cryptocurrency; what's needed are four rules:
1. Don't write specific people or specific outcomes into the mechanism
2. Open source and publicly verifiable execution
3. Keep it simple
4. Don't change it too often [this is an interestingly ironic parameter given the sheer amount of tinkering that Ethereum has undergone over the years]
196 On how changing the mechanism is a type of complexity and it "resets the clock on the veil of ignorance." [I think what he's trying to say here is after every change your "neutrality credibility score" goes to zero until you become credible again over time after showing credibility.]
Coordination, Good and Bad (2021)
202ff While coordination generally is better than every man for himself, each individual step toward more coordination is not necessarily beneficial. On negative forms of coordination, like people valiantly sacrificing themselves for Germany or Japan during World War II; or politicians and lobbyists coordinating bribes in return for policies; or a group of Bitcoin miners colluding to launch at 51% attack; these are all examples of coordination that created detriment to the world as a whole.
203 Partial coordination as collusion: Vitalik calls this "undesired coordination." On decentralization as anti-collusive.
206ff Reunsing the Scaling Bitcoin Conference photo where 90% of Bitcoin hash power was in one room at the same time, thus showing that barriers to collusion in Bitcoin (or the strength of Bitcoin's decentralization) were "not nearly as strong as we thought."
207ff Other barriers to collusion: moral barriers, like showing that a warning sign or a lock on the door, making clear that an obvious moral transgression is about to occur if you breach it; on holdouts, when an internal negotiation fails among those colluding, producing counter-coordination in response to the original colluders; on defection, when someone blows the whistle on collusion activity. Note that forking is a good example of counter-coordination to recover from a collusion event; "forking is very easy in an open source software context" with the challenge then to show/have legitimacy.
210ff Determining the structure of coordination: is it to solve a problem, is it to exploit another group, is it to strike back against such a group and its collusion? Also on technology that helps structure coordination: technologies that protect privacy, or that make it difficult to show how you behaved (like a secret ballot), also decentralization in various forms (either physical/literal or across constituencies such as miners, developers, coinholders, users); more specific examples of building a system that uses per-person voting rather than per-coin of per-share voting; setting up schelling points that enable the kind of coordination that you want; but also enabling defectors and encouraging them to alert everyone else about collusion activity.
Prediction Markets: Tales from the Election (2021)
213 On prediction markets: Vitalik considers these "credibly neutral" sources of predicted probabilities, citing Auger, Omen and Polymarket as blockchain applications of prediction markets. This essay discusses Vitalik's profitable foray into a prediction market trade on the Trump/Biden election.
214 He buys the NTRUMP token which would pay $1 if Trump lost the 2020 election: "Little did I know then that my position would eventually increase to $308,249 earning me a profit of over $56,803, and that I would make all of these remaining bets, against will encounter parties, after Trump had already lost the election."
215 On "the [false] heuristic that if a viewpoint seems clever and contrarian then it is likely to be correct." [This is also a huge problem in investing, I've been guilty of it myself more times than I'd care to admit.] Vitalik cites as an example a political theorist he respected who thought Kanye's West's attempt to run for president would split the anti-Trump vote and lead to a Trump victory.
216 On how "old world" prediction markets have low limits and high fees, but the crypto market-based prediction markets do not; also on Auger or Omen token there's no limit to how much you can buy or sell.
218 The NTRUMP token stayed at 85c even after the election and even after Trump's legal challenges to the election failed; and even after the Supreme Court unanimously rejected Trump's attempt to overturn the vote the tokens stayed at 88c.
219ff Vitalik buys the NTRUMP token on Catnip, a frontend user interface, using the DAI stablecoins or using Foundry. He also doesn't want to sell his ETH so he opened a collateralized debt position on MakerDAO, explaining here how that works: deposit your ETH into a smart contract, you can withdraw up to 2/3 of the value in newly generated stablecoins made by DAI, you get your ETH back by sending it back plus an interest fee, if the collateral drops below 150% of the value of the stablecoins you took out, anyone can liquidate you, this encourages high collateralization ratios. Also he discusses the slippage on Catnip which kept him making multiple trades below a certain size; over the course of two months he accumulated 367,000 NTRUMP.
221ff Concerns about the trade: that the Auger smart contracts would break; that the oracle would be manipulated making it return a false result; or maybe there's far fewer people motivated to see this opportunity and take advantage of it; also you have to tie up some capital for two months; finally [probably most importantly] it's technically complicated to make the trade. [This is like one of Ed Thorp's creative transactions!]
225 On discussing the virtues of trusting your own reasoning; a discussion of Eliezer Yudkowsky book Inadequate Equilibria where he talks about people assuming that "if other people aren't doing something then it shouldn't be done" or presuming that there's no validity in taking that action, basically this is overly epistemically modest behavior. [This is also a problem in investing, at least for me: I may have a creative idea or an investment themes and I usually worry quite a lot why it hasn't been exploited away already. Of course, the opposite problem is far more dangerous...] "This was not my first time seeing the virtues of trusting one's own reasoning firsthand. 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." Basically he thought a smart-contract-capable blockchain was a great idea, in fact so good and idea, that certainly other people must have already thought of it already [!] and then after he published his white paper he expected many smart people to tell him it was fundamentally impossible. "And yet, no one ever did."
227 Arguing that it's not a good idea to spread a society-wide message "to simply trust the existing outputs of society" from academic institutions, media, governments, markets, etc. [Agreed, in fact it's a better heuristic today in our Fourth Turning society to assume the existing outputs of society are wrong in some fundamental way.]
227ff On implications for futarchy: there's not much social value in predicting the next president in a betting market but there could be social value in walking through conditional predictions and using prediction markets to help make better decisions; also note that when a manipulator wants to push an outcome the other side of the trade becomes more and more attractive, as a result so this sort of self-defeats manipulation, at least theoretically.
230ff This sounds like a bit of a leap here, but he is thinking in evolutionary terms that there will be a selection pressure for people who make proper bets, and after multiple rounds their capital will dominate an ecosystem [in this case he's speaking about the cryptocurrency ecosystem, but you could extent this to any ecosystem where if you're right consistently you will capture more and more of that ecosystem's capital]. Note also that prediction markets are bounded between zero and one so there's less noise than there is in say a stock market; also as prediction markets on blockchains mature there will be less complexity in making the transaction and lower fees, we'll see a hardened infrastructure, better oracles, etc.
232 "This whole saga has proven to be an incredibly interesting direct trial-by-first-test of prediction markets and how they collide with the complexities of individual and social psychology. It shows a lot about how market efficiency actually works in practice, what are the limits of it, and what could be done to improve it." Also interesting as he says this is an instance where blockchains can be used with concrete value given that they're often criticized for "not doing anything meaningful except for self-referential games."
The Most Important Scarce Resource Is Legitimacy (2021)
235ff Comments here on a massive misallocation of resources between network security spend versus R&D spending on both Bitcoin and Ethereum. "The last 20% of network hash power provides vastly less value to the ecosystem than those same resources would if they had gone into research and core protocol development." [Of course it doesn't really work that way, and Vitalik certainly knows this: PoW or PoS network spending isn't fungible to developer R&D spending. Another thing to consider is the likely pushback from a Bitcoiner: do you even want all that much "tinkerability" on your chain in the first place? Bitcoin is better off staying the way it is, which is why it is structured to require an overwhelming consensus to change it.]
236 "...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 that capital can go." Vitalik saying here that "legitimacy" is the underlying social force driving this effect.
237ff on the Steem and Hive saga where Justin Sun contrived to get control of the Steem chain, and then the chain forked off into Hive in response; on how you can lose your legitimacy and be ostracized from a community for doing something abusive like what Justin Sun did.
240 On a working definition of legitimacy: "Legitimacy is a pattern of higher-order acceptance. An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same."
241 "...blockchains are full of coordination games." The Ethereum naming service; even an NFT's value are predicated on people believing in your ownership and, if someone wants to buy it from you in the future, your NFT purchase must be recognized as legitimate by everyone else. Thus "there's a great benefit to having the same answer as everyone else, and the mechanism that determines that equilibrium has a lot of power."
242ff Various theories of legitimacy: legitimacy by brute force; by continuity (something legitimate at time t is by default legitimate at time t+1); by fairness; by process (laws passed by democracies would be an example here); by performance; by participation.
245 On the idea that cryptocurrency capital can be easily assembled, but at the same time it is constrained by various conceptions of legitimacy: you can't just distribute it to a centralized team or your friends for example.
249ff On NFTs and legitimacy: when a wealthy celebrity sells an NFT to make money for themselves, that has less legitimacy than an NFT sale for an interesting cause; this is yet another question/aspect of legitimacy; [I think here in this case there is some confusion between a primary market for an NFT (which would fund a cause) versus the secondary market where things are resold to anyone.]
Against Overuse of the Gini Coefficient (2021)
256 "The Gini coefficient combines together into a single inequality index two problems that actually look quite different: suffering due to lack of resources and concentration of power."
259 "Wealth concentration within the blockchain space in particular is an important problem, and it's a problem worth measuring and understanding."
260ff "The average person with $15 in fiat currency is poor and is missing out on the ability to have a good life. The average person with $15 in cryptocurrency is a dabbler who opened up a wallet once for fun." [The point here is to distinguish between inequality in resources and inequality in interest: many people don't go all in into cryptocurrency]; having a plutocratic distribution of a token won't cause a dystopia but it may affect coin voting or governance to make protocol decisions [and that may not be bad actually either].
261ff Walking through some different indexes then one can use to look at this, including the Herfindahl index of economic concentration in industries.
Moving Beyond Coin-Voting Governance (2021)
265ff On decentralized governance; various examples of organizations that started DAOs; the rising popularity of DAOs, but also risks (see the hostile takeover of Steem and the exodus to Hive). Vitalik's thesis statement here is "we need to move beyond coin voting as it exists in its present form."
266ff On funding a project or public good versus protocol maintenance, upgrades and adjustment operations by the protocol, and how to structure agreements on the latter. On how early blockchain projects ignored both of those challenges and looked at network security is the only public good, like Bitcoin. [I came face to face with this issue as I participated (slightly) in the CityCoins project: it started to die off due to lack of dev support, the founder basically moved on and disappeared from participation, and basically the project forgot to fund itself as part of its own structure!]
268 Contrasting Ethereum's mining rewards and gas fees of billions of dollars a year compared to the Ethereum Foundation's budget of $30-60 million a year. On a similar situation in Bitcoin. Vitalik then contrasts this with a DAO which can fund developers and have credible neutrality.
270 On-chain versus off-chain governance: a foundation or a company or a charismatic authority/founder.
271ff More discussion of problems with coin voting (not considering circumstances where there are attackers): 1) whales have disproportionate influence, 2) coin voting rewards coin holder interests at the expense of other parts of the community; 3) conflicts of interest between large holders and other holders, or holders who are interacting with that platform.
272 On coin delegation to attempt to solve some of these problems: this is where small orders can delegate their votes to community members they trust; Vitalik considers this "an honorable and worthy experiment."
274ff Looking at coin voting problems when under attack; Vitalik makes a useful definition of a token in a protocol containing two rights that are combined into a single asset: 1) an economic interest in the protocol's revenue, and 2) the right to participate in governance; he makes the point that these two rights are easy to unbundle from each other, especially in a vote buying circumstance.
276ff He goes over a simple borrowing protocol and shows how unbundling these two rights can be easily done. Also if you store your coins on an exchange you're also effectively unbundling these two rights.
279 Ironically when you have high wealth concentration of token holders, bribing doesn't work! People are too rich and already well-coordinated; other drivers that make bribing difficult is a good community spirit and the fact that there's no real mature financial market in governance tokens. Liquidity for lending protocols is generally low so it's hard to structure bribing arrangements.
280 Various solutions in the bucket of using limited governance: like using on-chain governance only for applications, not for base layer changes; limiting governance to fixed parameter choices (like Uniswap does with token distribution and their fee structure); adding time delays which can allow the chain to fork off under an unacceptable decision; and making a chain structurally more fork friendly, so there is less payoff for capturing governance (again Uniswap is structured this way, where it's easy to fork off and you have to opt into future versions of the platform).
281ff Other types of solutions like proof of personhood, proof of participation, or quadratic voting.
282ff Speculative ideas here on trying to introduce a skin-in-the game element to voting, so that voters are not just collectively responsible for a decision but individually responsible; fork friendliness is a good skin-in-the game strategy; he even offers a caveat here of destroying the original coins when a fork happens, and then speculates about having the coins destroyed of those who participate in a bad governance decision, thus you'd be directly exposed to any bad decision. "...if an attack happens, and your coins vote for the attack, then your coins are destroyed. If your coins did not vote for the attack, your coins are safe. [Of course the devil is in the details in deciding what constitutes "bad" here and who gets to decide what's bad...]
284 There's an interesting editing error here: the article drops a full paragraph between pages 284 and 285, you have to go to Vitalik's website to see the original article to read this part.
285ff Introducing futarchy as another skin-in-the game mechanism where you vote more with betting or buy orders on a token that has a finite range of values from 0 to 1; on the difficulty of use pure futarchy in this domain "because the objective functions are very difficult to define" but various hybrid examples of it: votes as buy orders (basically you require an enforceable buy order to buy additional tokens at a price below the current price of that token and so supporters of a bad decision maybe forced to buy out their opponents), retroactive public goods funding (after a project is successful or has achieved a result buyers of that token get a share of the reward), escalation games (value alignment on lower level decisions is incentivized by the possibility to appeal to a higher effort but higher accuracy higher level process; voters whose votes agree with the ultimate decision are rewarded).
286ff Other hybrid solutions like time delay plus elected specialist governance, or loosely covered/advisory coin votes (that make an opinion public but don't directly implement a change, this this builds legitimacy for off-chain government to implement that change).
287 "Coin voting is attractive because it feels credibly neutral... In practice, however, coin voting may well only appear secure today precisely because of the imperfections in its neutrality (mainly, large portions of the supply staying in the hands of a tightly coordinated clique of insiders)."
Trust Models (2021)
289 "First, my simple one-sentence definition of trust: trust is the use of any assumptions about the behavior of other people."
290 "Not growing your own food is another kind of trust: trust that enough people will realize that it's in their interests to grow food so they can sell it to you."
290ff Four dimensions of trust:
1. How many people do you need to behave as you expect?
2. Out of how many?
3. What kinds of motivations are needed for those people to behave? Do they need to be altruistic or profit seeking or uncoordinated?
4. How badly will the system fail if the assumptions are violated?
291 On various x of n models, 1 of 1 (centralized), n of n (dystopian, no backups), n/2 of n (blockchains/51% attck), 1 of n (fraud proofs), Few of n many actors, a few need to do what you expect), 0 of n (no dependence on outside actors).
292 Even software that you run typically depends on "few of n" trust models to ensure there are no bugs in the code or that someone will catch them.
292 Asking how does a system fail if your trust assumption is violated? Liveness failures (you're temporarily unable to do something you want to do like withdraw coins or get a transaction included in a block); safety failures (an event in which something actively happens that the system was meant to prevent, like an invalid block getting included in a blockchain).
292ff Discussion here of trust models of layer 2 protocols:
* State channels like the Lightning Network are 1 of 1 for liveness and "n/2 of big-n" for safety.
* Plasma (when centralized) is 1 of 1 trust for liveness and n/2 of big-n for safety again; Plasma when semi-decentralized like DPOS: n/2 of small n for liveness and n/2 of big n for safety.
Optimistic rollup: 1 of 1 or n/2 of small n for liveness and n/2 of big n for safety.
ZK rollup: 1 of small n for liveness, no safety failure risks.
ZK rollup with light withdrawal enhancement: no liveness failure risks, no safety failure risks.
293 "When someone says that a system depends on trust, ask them in more detail what they mean! Do they mean 1 of 1, or 1 of n, or n/2 of n? Are they demanding these participants be altruistic or just rational? If altruistic, is it a tiny expense or a huge expense? And what if the assumption is violated--do you just need to wait a few hours or days, or do you have assets that are stuck forever? Depending on the answers, your own answer to whether or not you want to use that system might be very different."
Crypto Cities (2021)
295ff On the idea of local governments having wider variance and doing more experimentation; Miami mayor Francis Suarez; Wyoming with its DAO friendly legal structure, Colorado experimenting with quadratic voting, also various projects trying to create entire neighborhoods and cities from scratch like CityDAO. On cities with coins or nfts or a DAO see for example CityCoins or Reno and the mayor's attempt to blockchainify the city with NFT sales to support local art and blockchain voting, etc.
297 On the idea that cities are smaller units that can be persuaded to adopt a given idea more easily than an entire country; also people can leave a city much more easily than a country.
299 Brief mention here of CityCoins [I have to admit, regarding CityCoins that it's a little bit sad reading this article written in October 2021 and seeing that three years later the project began its winddown.] Also a brief mention of Stacks here, interestingly, where Vitalik makes a parenthetical remark about Stack's Proof of Transfer block production algorithm: "for some reason abbreviated PoX, not PoT." [Heh.]
300 CityDAO as the "most radical of the experiments" per Vitalik. [Note that there isn't actually a token trading on secondary markets here, you have to actually purchase access to the community by buying the protocol's NFT]
301ff Vitalik muses on two categories of blockchain ideas that makes sense:
1) Using blockchains to create more trusted, transparent, and verifiable versions of existing processes (fair random number generators, certificates of residency, asset registries, even voting)
2) Using blockchains to implement new and experimental forms of ownership as well as new and experimental forms of democratic governance (government payments and transfers, some of the data could be kept in a ZK proof format for privacy, etc.)
305ff He makes an interesting argument against CityCoins in that the early adopters got most of the supply [which is true, actually probably more true than he realizes it because the platform later changed the tokenomics to drastically reduce token emissions]; other interesting ideas based on MiamiCoin, for example that a city could make services like public parking spaces only available for free to those who hold some number of coins locked up: this would give an incentive to hold and sustain the token's value and it would create an incentive specifically for residents to hold the coin; also it creates economic alignment with the full city, not just a specific part of the city.
307ff Quadratic voting on the fee that nearby landowners have to pay to bypass zoning restrictions.
308 On more radical and participatory forms of government; quadratic funding for local news or advertising prices, etc.
Soulbound (2022)
313 A "soulbound" item is something that can't be transferred or sold to another player; what if NFTs could be soulbound? Proof of attendance protocol (POAP), where NFTs represent the idea that the recipient personally participated in some event, this could also be something that is soulbound, these are both examples of ideas of non-transferable NFTs.
316 On the idea of governance rights being soulbound, because bad things happen when government mechanisms and government power is easily transferable, typically because that power centralizes and goes to those who most want to rule and who are "least suited to do it" according to the proverb [I had not heard this proverb before: "Those who most want to rule people are those least suited to do it"], thus transferability takes power and moves it to those who are power hungry.
317ff Implementing non-transferability in practice; note that someone with a proof of attendance protocol/POAP still might want to transfer it to another wallet; and either way we could wrap it in another token and transfer that; also see the Adidas POAP that gave users priority access at a merchandise sale and they were quickly traded and sold to higher bidders.
318ff On proof of humanity attestations; these can be theoretically sold as well, although there are protocols to take them back.
320 On dealing with privacy issues with proof of humanity protocols, there are options like ZK SNARKS [Zero-Knowledge Succinct Non-Interactive Argument of Knowledge: basically you provide cryptographic proof that you have some piece of knowledge without actually revealing the actually information you know], and other things that can still protect privacy.
Appendix: Ethereum Whitepaper
325 "What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create 'contracts' that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code."
326 On antecedent ideas and protocols: Chaumian blinding, which influenced the cash protocols of the 1980s-90s; Wei Dai's b-money (1998) which introduced the idea of solving computational puzzles as part of creating money and also a decentralized consensus; Hal Finney in 2005 and his concept of reusable proofs of work; and Adam Back's Hashcash puzzles; leading up to the 2009 implementation of Bitcoin by Satoshi Nakamoto.
327 Bitcoin as a "state transition system"; discussion of sample UTXO's (unspent transaction outputs) in the tradfi system and then on Bitcoin.
330ff Then decentralizing it by having the current "state" agreed upon by consensus; on mining, difficulty adjustment, block rewards, etc.
333 How an attack would be done; mining a block with a double spend for example; on needing 51% (at the very very least!) of the network's hash power to redo a series of blocks.
334ff Brief discussion of Merkle trees and how they link blocks to insure a chain is canonical, also they enable light nodes along with full nodes.
336 Emergence of other applications: Namecoin ("first-to-file"), colored coins, metacoins.
337ff On building on top of Bitcoin vs building an independent network; also "the vast majority of applications would be too small to warrant their own blockchain."
338ff Scripting: Bitcoin "actually does facilitate a weak version of a concept of "smart contracts." (An example would be multisig); limitations to Bitcoin scripting: it lacks Turing completeness (meaning it can run any computation or algorithm), value-blindness (thus you can't do hedging), lack of state (UTXO can be spent or unspent, this you can only do one-off contracts, not complex "stateful" contracts like DAOs, or metaprotocols), blockchain blindness (UTXO are blind to nonce, timestamp, etc., thus this limits apps like gambling and several other categories).
341 "Thus, we see three approaches to building advanced applications on top of cryptocurrency: building a new blockchain, using scripting on top of Bitcoin, and building a meta-protocol on top of Bitcoin. Building a new blockchain allows for unlimited freedom in building a feature set, but at the cost of development time, bootstrapping effort, and security. Using scripting is easy to implement and standardize, but is very limited in its capabilities, and meta-protocols, while easy, suffer from faults and scalability.
341 On Ethereum providing a different set of trade-offs that will be useful for a large class of decentralized applications, with particular emphasis on rapid development time and security for small and rarely-used applications; Ethereum is building the ultimate abstract foundational layer: a blockchain with Turing-complete programming language built in, allowing anyone to write smart contracts and decentralized applications.
342ff An Ethereum account contains four fields: The ether balance, the contract code, and the storage; ether is the fuel that is used to pay transaction fees and there are two types of accounts: externally owned accounts controlled by private keys, and contract accounts controlled by contract code. Also on contracts thought of as autonomous agents, not something that is "fulfilled" or "complied with."
344 On gas: the more computational space taken up by a message or a transaction the more gas required; likewise also there's a gas fee minimum for every byte in the transaction data.
344ff On messages: contracts can send messages to other contracts.
349ff On how blocks are validated.
351 "A commonly asked question is 'where' contract code is executed, in terms of physical hardware. This has a simple answer: the process of executing contract code is part of the definition of the state transition function, which is part of the block-validation algorithm, so if a transaction is added into block B the code execution spawned by that transaction will be executed by all nodes, now and in the future, that download and validate block B."
351ff Discussion of the three types of applications that that can run on top of Ethereum,
1. financial applications including sub-currencies, financial derivatives, hedging with contracts, savings wallets, wills, etc.
2. semi-financial applications like self-enforcing bounties for solutions to computational problems, and
3. applications like online voting and decentralized government that are not financial at all.
352ff "Token systems are surprisingly easy to implement in Ethereum." [It's amazing how he reduces the concept of a currency into two sentences here]: "The key point to understand is that all a currency, or token system, fundamentally is, is a database with one operation: subtract x units from A and give x units to B, with the proviso that (1) A had at least x units before the transaction and (2) the transaction is approved by A... A few extra lines of code need to be added to provide for the initial step of distributing the currency units in the first place and a few other edge cases, and ideally a function would be added to let other contracts query for the balance of an address. But that's all there is to it." [!!!]
353ff Other applications: financial derivatives, stable value currencies [stablecoins]; he gives an example of a hedging contract and how it would be structured with the only risk being really the price information feed' identity and reputation systems; decentralized file storage; decentralized autonomous organizations; even decentralized corporations.
359ff Still more applications: savings wallets [this is a very interesting example of a two-party wallet contract that limits withdrawal amounts for an individual, allows a second organization (like a bank) also access to a small limited withdrawal amount, but this can be shut off by the owner, and then the two entities together can withdraw anything; this is a form of multisig that can be used for both key retrieval and security. Verrrry interesting.]
360ff Other applications: crop insurance; decentralized/trustless data feeds; smart multi-signature escrow (with far more granularity or permutations than Bitcoin multisig); cloud computing (Ethereum enables a verifiable computing environment, although it is best for parallelized projects); gambling; prediction markets; on-chain decentralized marketplaces, etc.
362ff On various concerns like the GHOST problem (greedy heaviest observed subtree) to deal with reduced security due to a high stale/wasted block rate on blockchains with fast confirmation times. This problem tends to lead to one dominant mining pool and de facto control over the mining process. The GHOST protocol will include stale blocks in the calculation of which chain is the longest, in other words it might include "uncle" blocks; ethereum also gives partial block rewards to uncle blocks and nephew blocks.
364ff On fees: contrasting with Bitcoin where the fees are voluntary or market-based, Vitalik considers this to have tragedy of the commons risk.
367ff On the Turing-completeness of the Ethereum code where it can carry out any computation, including infinite loops; discussion of how EVM (Ethereum virtual machine) code allows this; comments on dealing with the halting problem: the solution here is to require a transaction "to set a maximum number of computational steps that it is allowed to take, and if execution takes longer computation is reverted but fees are still paid." On why it's better to solve this with a Turing-complete language rather than using a Turing-incomplete language that lacks JUMP commands.
370ff On the ETH currency and subdivisions of it; wei, szabo, finney and ether. [It's quite beautiful that he names the subdivisions after computer science influencers behind his idea, today however I think the only unit used is gwei which stands for gigawei, 1 billion wei]; also discussion here of Ethereum's tokenomics: the initial sale and the allocations to early contributors and the foundation and to miners [obviously this is long before Ethereum switched to proof-of-stake, also keep in mind that Ethereum has repeatedly changed its monetary policy over time, this is of course a key criticisms from Bitcoiners: any sort of tinkerable system will be tinkered with and subject to the motivations/morality of those tinkerers, whoever they may be]; also an interesting justification of Ethereum's endowment fund: "If the endowment pool did not exist, and the linear issuance reduced to 0.217x to provide the same inflation rate, then the total quantity of ether would be 16.5% less and so each unit would be 19.8% more valuable. Hence, in the equilibrium 19.8% more ether would be purchased in the sale, so that each unit would once again be exactly as valuable as before. The organization with also then have 1.198x as much BTC, which can be considered to be split into two slices: the original BTC, and the additional 0.198x. hence, the situation is exactly equivalent to the endowment, but with one important difference: the organization holds purely BTC, and so it is not incentivized to support the value of the ether unit." [Interesting!]
373 "Note that in the future, it is likely that Ethereum will switch to a proof-of-stake model for security, reducing the issuance requirement to somewhere between zero and 0.05x per year."
373ff Comments on mining centralization, specifically on how Bitcoin mining has been dominated by ASICs; he wants the Ethereum mining algorithm to do something different: to fetch random data from the state and then compute certain transactions and return a hash of that result; so in other words the chips and the rigs used would need ASICs for general computation not a specific kind of number search like Bitcoin's mining algorithm [I think Ethereum mining became dominated by certain types of GPU chips ultimately, so it faced the same problem back when it was still a proof of work chain, note also that proof-of-stake chains have been described by Bitcoin commentator/evangelist Gigi as "just trust me bro."]
375ff On scaling problems with Ethereum: specifically as transaction volume grows, although Vitalik makes a bit of a mistake here likening or comparing Visa's 2000 transactions per second (which implies 8 terabytes per year in data growth on a blockchain [obviously the blocksize wars showed that Bitcoin was going to be a much smaller base layer settlement layer, with layer 2 solutions carrying more of the transaction volumes in the future, with final settlement on Bitcoin]; note that the Ethereum blockchain does a lot more and will likely have much worse scaling problems, and in the long run this means that only a very small number of large companies would run full nodes, and this will be a centralization risk. Vitalik suggests a layer of validator nodes that can show proof of invalidity to cope with the centralization problem on Ethereum.
Glossary
379ff The editor/collator Nathan Schneider includes a glossary here, and it's useful to think of it as a test of your crytocurrency knowledge: if you are conversant with and can define most of these terms, then I would say you have a decent, intermediate-level competence in this domain.
To Read:
Bruce Schneier: Liars and Outliers
Eliezer Yudkowsky: Inadequate Equilibria
Eric Posner and E. Glen Weyl: Radical Markets