What Is Ethereum? – An Investigation (w/ Raoul Pal, Vitalik Buterin, Joe Lubin, and more)

ASH BENNINGTON: Welcome to Ethereum: An Investigation. I'm Ash Bennington. Many think of Ethereum as Bitcoin 2.0, a programmable
version of Bitcoin. That's a very controversial view in some quarters. We're going to explore that topic and others
in this episode. I'm joined on this journey, of course, by
Alex Saunders of Nugget's News. Welcome, Alex. ALEX SAUNDERS: Thanks for having me on, Ash. ASH BENNINGTON: And, of course, our co-founder
and CEO Raoul Pal. Welcome, Raoul. RAOUL PAL: Thanks for having me on, Ash. ASH BENNINGTON: (LAUGHING) You're very welcome,
sir. Let's start out talking a little bit about
your journey into Ethereum.

First, Alex, how did you get involved in the
Ethereum ecosystem? And what's your current view of where we are
today? ALEX SAUNDERS: Well, interestingly enough,
it was through a hack which arrived in the crypto world. So I was actually part of the group who were–
you remember back in the day when there was the Mt. Gox incident where everyone lost their
bitcoins.

There was another smaller exchange which people
don't know about. And I was one of those that lost some bitcoins. And there was a group of guys saying I'm so
disappointed because I didn't get to partake in the Ethereum ICO. And I said, oh, you know what? I've heard about that, but the Bitcoiners
are giving it a hard time and saying that it's just another, you know, shit coin. And so I've never looked into it too much
deeper than that. And then, I finally decide to do my own research. And once I went down that rabbit hole in late
2015-2016, then you get your head around the fact that there's so much more to this than
just the blockchain of value. It's now smart contracts and all these other
applications that are possible. So that's where I got very excited about that. And I think here we are today where it's just
to the point where it's showing people what's possible and the potential.

But now we need to scale that out, get more
developers, and get more users. ASH BENNINGTON: Yeah. And Raoul, you of course were very early to
Bitcoin. I think it was the second video that we did
here at Real Vision, back in 2014, when you were talking about Bitcoin. How did you get involved in Ethereum? RAOUL PAL: I was very late to Ethereum. I was aware of it because, when I started
learning about Bitcoin, the people who were teaching me about it were also talking about
smart contracts very early on. This was back in 2015-2016 or so.

I was aware of smart contracts and the potential
that was going to bring. But as Ethereum ran up in 2017 and Bitcoin
did, I wasn't involved. And it was just a distraction to me. Because I'm a very macro guy, so I try to
distill it down to what is the simplest bet I can take. But then move on a few years, and I'm starting
to have an opinion about– OK, look, I've always thought this digital asset space is
huge.

And it's not just Bitcoin, because there are
going to be different applications for different things. And while Bitcoin may solve some of the things
that Ethereum currently solves, it's not necessarily clear that it needs to happen, that they don't
all have a place in the ecosystem. So for me Bitcoin is the bet on the kind of
reserve asset with the technology upside and the adoption and all of that. And Ethereum is the platform. It gives me the opportunity to invest in the
future of the broader space. So I think of the two as having a very nice
combined asset allocation. ASH BENNINGTON: Very interesting.

Let's start things off. We're going to look at a series of interviews
here today. I want to start things off with the man himself,
cofounder of Ethereum Vitalik Buterin. Let's take a look. VITALIK BUTERIN: Another interesting thing
about the time period compared to now was that back then it felt more like exploring
undiscovered territory. Like, it was this sort of idealistic exploration
of new and unknown things. We knew that certain kinds of financial–
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it. VITALIK BUTERIN: was this sort of idealistic
exploration of new and unknown things. We knew that certain kinds of financial things
could be done in theory. We knew that DAOs could be done in Ethereum. That would be really fun to try, but it had
never been done before. We knew that stablecoins could be done in
Ethereum, but it had never been done before in prediction markets. And it will be all, like, oh, here's an exciting
thing I invented.

Here's an exciting think I invented. And let's actually kind of build it and try
and make it happen. In 2020, it's much more kind of established. There is a community and it's all about who
can get to many thousands of users and be the big thing that kind of dominates Ethereum's
kind of top 10 list of which applications are spending the most transaction fees. ASH BENNINGTON: Alex, I'm really curious. That was an intriguing quote. He talks about the undiscovered territory. He's thinking about this really as a blank
slate of paper. What were your thoughts, having sat down with
Vitalik for, I think, a 90 minute or so interview? ALEX SAUNDERS: Someone that I've always wanted
to pick his brain. And we sat down. I think it was meant to be under half an hour,
and 90 minutes later I probably could have kept going.

But Ethereum has just been such a fascinating
journey, not without controversy. I've also seen a change in Vitalik. Very early on it was him and his baby, even
though he didn't necessarily want it to be. And it's grown into this bigger ecosystem. You could see he was very, I think, stressed
at one point as well, when there was a lot of unknowns about how they were going to scale. And now he definitely seems and feels more
relaxed. You see that in the way he engages even on
Twitter. Very confident in the research and the hard
work he's done. It's just about putting the final pieces of
the puzzle in place. But then, the road map never ends. It's a bit like the internet. We're always wanting to develop it. And the story's going to have many more chapters. So he's just a genius. I could keep talking to him all day, like
I said. But very, very exciting. ASH BENNINGTON: Yeah. Raoul, in some ways you and Vitalik share
in common this very big picture view of the universe about thinking about things in the
most macro level.

Vitalik is talking about all of the things
that Ethereum can do, smart contracts can do. All the applications, decentralized finance,
and some of the other things that we've discussed. And he ends by saying effectively, the time
is right now. This is the moment that things are going to
begin happening. What are your thoughts? RAOUL PAL: Yeah. I think it's very much the time for all of
this. Again, I've talked about this in the past,
the central bank digital currencies.

There's a move towards a wholesale change
of how financial markets operate and the financial system operates. The IMF, the BIS, the ECB, the Bank of Japan. Everybody has agreed that fintech and all
the solutions being built, they should not get in the way of them. So this vision that Vitalik has, I think,
is really important for the future of all of that. And I think he's doing– Alex kind of alluded
to this. All he can do is set the course and then it
will take its own path. The community will take it where it is, where
it's going to.

And all he can do is hopefully give it some
pointers. It may end up nowhere where he thinks it's
going to go. But that's the excitement of the whole space. It's adaptable and it's changing fast. And there are so many smart people involved. I've never seen things like this before. Bitcoin evolves very fast. Ethereum evolves at a lightning pace. I mean, it's extraordinary what's happening. And that's all to his vision. ASH BENNINGTON: And we're going to talk more
about the speed of adoption along those lines and later in this interview. RAOUL PAL: Great ASH BENNINGTON: Yeah, there's
definitely the sense that we are at a key inflection point here in the ecosystem. We're going to transition now to an interview
that I did with Joe Lubin who is the founder of ConsenSys. Joe actually picks up on the point that Raoul
just made about how Ethereum is building on the work that Bitcoin had already done. Let's take a look. JOE LUBIN: The key innovation that Ethereum
brought over Bitcoin was making it much more programmable.

Bitcoin is a great system for certain use
cases that are narrowly around the issuance of a money token, the trading of a money token. Maybe you can build a little bit of extra
functionality. Like, you can build in delays to that system. But it's not very programmable and it doesn't
seem to want to get very programmable. As a collective, the core developers want
to continue to be the stewards of a rock solid money system for the planet. There are ways of doing programming outside
the system, but they're not subject to consensus in the system. And so, you could have improper manipulations
in a piece of software that's sitting on top of Bitcoin and nobody would have the ability
to introspect and know that.

Ethereum has replaced the fairly limited scripting
mechanism that's available on Bitcoin with a fully expressive, full-featured programming
language or set of programming languages in a virtual machine that runs the programs directly
on the network. And so, we can build arbitrarily complex behavior
directly into money tokens or equity tokens. So we can build compliance mechanisms directly
into the system. And if you're building a business on that
system and the logic is actually on the system, that can be interrogated. And you can be fairly certain or in some cases
completely certain if you really want to look deeply, that there isn't any sort of improper
manipulation going on.

So no cheating going on. It's a much more expressive system. You can do whatever you want and it maintains
full validation characteristics. And that's true either of layer one or of
layer two systems that are built on top of layer one for scalability. So that we can move beyond to tens of thousands
of transactions per second and hundreds of thousands of transactions per second. The same sort of validation– it's more time-consuming
to do the validation in layer two sometimes, depending on the technology you're using. But it still has roughly the same security
guarantees. ASH BENNINGTON: Joe talks about programmable
money. He's very much a builder. He's very much someone who has a vision. He's trying to get us from point A to point
B.

What were your thoughts? ALEX SAUNDERS: I think Joe Lubin is such an
essential piece of the ecosystem. And they're uniquely positioned in that they're
in the intersection of more of the enterprise adoption world and the professional world,
in a space that's about decentralization. And there's kind of been this grassroots,
individual developer, libertarian, get-on-board movement. And Joe is trying to bring that experience
and maturity to the business world, which I think is just so important. And he's the right man to do the job. ASH BENNINGTON: Raoul, to pick up on that–
the idea that some of these technologies are becoming mainstream, they're getting implemented. This isn't pie-in-the-sky stuff any longer. We are right now at the point where the rubber
meets the road, where institutions are beginning to adopt these technologies, and where they're
beginning to have an impact on the traditional financial world.

RAOUL PAL: Yeah. I think it's really interesting because a
lot of this space was driven by engineers solving problems for which the financial system
had had to deal with legacy issues. So these guys did typical engineer stuff. They broke it down and decided on a different
way forward. Now what's happened is the engineers have
developed something. They've basically collided with the finance
guys about, OK, this is how you apply it. I mean, DeFi is the exact combination of those
two things. The finance guys kind of advising the crypto
guys and the engineers. OK, this is what a financial system looks
like. And these guys say, fine, we'll try and build
that.

So I find it all very interesting. As Alex said, once you put together that level
of professionalism, plus the engineering, plus the vision, this is what you create. ASH BENNINGTON: Let's take a look at a second
quote from Joe Lubin. JOE LUBIN: Experimentation. Innovation is happening on the open, decentralized
finance front. The gates have been flung open and the citizenry
is now being given the access to build, to fork, to use, to compose the financial infrastructure. Instead of the monetary issuance systems and
the financial instruments issuance systems, essentially being controlled by the financial
priests, the whole world is just sort of like the internet and web technologies opened up
access to information, creation, dissemination, sharing, communication. These decentralized protocols that have trust
built into them are now fertile ground for building money systems and building all the
broad capabilities that you would want inside a money system.

So protocols are being built for lending,
borrowing, credit, insurance, full asset issuance, full lifecycle asset management, automated
portfolio management, issuance of equities obviously, bonds. Even major financial institutions are doing
that sort of thing on public– at Ethereum even. Tokenization of portfolios is happening. Prediction markets are happening. I think prediction markets are going to grow
in importance probably pretty soon. Decentralized exchanges are gaining real traction
against centralized exchanges. Aggregation is turning into a tool that I
think is going to provide much greater pricing greater access, ease of access, and ease of
universal access to people from their living rooms. It's an astonishing amount of innovation that's
going on.

And one of the beauties of DeFi is these protocols
are all being built sort of as LEGO blocks. So magic internet money LEGO blocks that you
can snap together, stack, and build these flows of value with a whole bunch of protocols
that weren't [INAUDIBLE] to work together. But because of the nature of Ethereum– and
I think at present the last number I read was that something like 96% of all DeFi transactions
were running on the Ethereum network. It's where a ton of liquidity is. And that's where the innovation is happening. It's an amazing democratization of the financial
infrastructure for the planet. ASH BENNINGTON: We get the platonic view of
the ecosystem from Vitalik Buterin, and then we get the Aristotelian view of what's actually
happening right now from Joe Lubin. Specifically, there were two things that Joe
said in that piece that I thought were especially interesting. The first was he said, we are no longer under
the control of the financial priests. I think that's quite a powerful commentary
on where we are and where we're going to. And the second thing that I think may take
some people by surprise who aren't following this ecosystem as closely as you guys are
is the idea that 96% of the transactions on the DeFi space happen in the Ethereum ecosystem.

Effectively, DeFi is an Ethereum play. Alex, what are your thoughts on that? ALEX SAUNDERS: I think there was a lot of
Ethereum killers. And competition is healthy. I think you'd also argue that there's technologies
that are better or faster that have made other tradeoffs. But it was always my belief that the network
effects are the things that are hard to replicate. And that is strengthening the network. In a lot of ways like how Bitcoin has become
the money or the currency, and that is really hard to compete with as the store of value,
Ethereum's gone down that path in terms of technology. And the money LEGOs is just an example of
the network effects and that exponential growth that you get when you can have those number
of connections.

And we are now seeing that just explosion. And I'd say there's probably 10 or 100 times
more developers and projects in that ecosystem than the next biggest competitor. ASH BENNINGTON: Yeah, that's exactly right. Joe talks about this idea of the money LEGOs. The idea that these are building blocks that
can be interlocked together to give us basically a whole that's equal to more than the sum
of the parts. Raoul, in many ways this reminds me of many
of the things that you've been talking about.

The idea that we're no longer under the control
of the financial priests. The genie is out of the bottle. RAOUL PAL: Yes, it is out of the bottle. I don't think they're going away. But I think we've been offered an alternative,
and that alternative is building in parallel. They will connect for a period of time, as
I've talked about. Central bank digital currencies, digital wallets,
all of this stuff become consumer applications which allow for some of this. But I think the point about how I'm seeing
this right now– and again, this space changes and things will develop. But if you think of Bitcoin as the collateral
of the financial system, Ethereum is currently like bonds or the credit layer.

It's where the yield curve exists. It's where the transactions actually take
place. We're the collateral beneath it all. Again, there are some parallels to the financial
system. But differences obviously because of the distributed
nature and how so many people are involved in working on the space separately. But I do think that's where it currently is. And I was thinking about this today. I think there's going to be different blockchains
for different purposes. And maybe this is Ethereum's killer app, but
we don't know. Its technology is really profound, so it could
come into some other use cases in the end. But really, when you use money as the value
of a blockchain, it's very difficult to use it for other purposes. It's not financially viable in the end to
use it for legal contracts. That would probably go to a different blockchain. Because when you're close to the money, people
will pay more for it. So it's just very interesting. It seems that Bitcoin and Ethereum are going
to be the money systems.

And other blockchains, maybe even things like
Rippl end up being transactional systems. They'll all play a different part in the ecosystem. But this thing that's happening now is really
a revolution in what digital money looks like. I've talked about it. Again, to create a yield curve in the digital
asset space is an incredible step forwards. ASH BENNINGTON: Alex, I see you nodding there. I know that some of Raoul's points are things
that you've been thinking about. What are your thoughts about on this notion
of creating a yield curve in the Ethereum space and some of the other DeFi points that
Raoul touched on? ALEX SAUNDERS: Yeah, it's so funny.

Raoul brought that up. And that's something that is not really my
area. And I was aware of it because of the fluctuation
in interest rates. And I said to Raoul at the time, Ethereum
and the developers tend to solve these problems pretty quickly. Sometimes, in a matter of weeks. And then, literally days later, we had two
brand new projects come out or that they had been building and I just wasn't aware of them. That are building a yield curve. And now we have that in the Ethereum ecosystem
just in a matter of time, the past few weeks that we've kind of been [INAUDIBLE] that problem,
and the yield curve is now in the world of DeFi. That point that Joe made about 96% of transactions,
as well. The biggest problem that central banks are
currently trying to solve is this idea of velocity of money that's just crashing. I think we got the latest data the other day. It's down to one. There was a recent report in the Ethereum
ecosystem on the stablecoins.

And the M2 or the velocity of their turnover
is closer to 20. And it's higher for the more decentralized
coins, as well. So there's a clear message there that they're
printing these trillions of dollars sitting in reserves in the banks. They just can't get circulation of money in
the economy. And it's just off the scale in the Ethereum
ecosystem. RAOUL PAL: I think the key point here is one
of the reasons for this space was to get the banks out of the way. Take the banks out of the way, and there's
velocity of money. Put the banks in the way, no velocity of money. Fascinating. ASH BENNINGTON: Now let's turn our attention
to stablecoins coins and central bank digital currencies. Alex sat down with Kain Warwick, founder of
Synthetix. KAIN WARWICK: I think the news that Bank Frick
in Liechtenstein was accepting USDC as a deposit method a month or so ago is kind of a huge
shift.

Right? A regulated bank, even if they are kind of
a crypto bank. They're considered a bit of a crypto bank
in Europe. But like a regulated bank in Europe that was
accepting stablecoins as a deposit mechanism is pretty out there. If you had tried to tell someone two years
ago in crypto that that was going to be a thing, I think most people would not have
believed it. So we're definitely starting to chip away
at that. And if you think about the structure of that,
the Ethereum rails and the stablecoins that we have on there. Whether it's tether or USDC or whatever, it's
10x better than the SWIFT network. Right? If you connect all of the banks via this Ethereum
rail and then internally they've got their legacy systems– and that's fine– you can
really get a huge user improvement.

The end user experience there is just massively
better. You're not waiting three days, four days,
huge fees, et cetera. You can move money around really, really effectively. I think that that's only going to accelerate. And as more options come out for different
types of stable points with different trade offs and regulatory considerations, I think
it's just going to proliferate. And all the banks are going to accept it. And the rails for moving money into a bank
are just going to migrate to Ethereum. It's pretty much almost impossible to see
that not happening now. ALEX SAUNDERS: Yeah. And I think Bank Frick is only one piece of
that puzzle. In the past month, we've seen a number of
announcements from the JP Morgans of the world that have gone through that whole process
of first they fight you and they ignore you, and then eventually they join you.

And they're now serving some of the largest
crypto exchanges. But just in the past 24 hours as we're recording
this, we've had the announcement about the federally regulated banks in America now being
able to custody crypto. Now, that's a huge step forward. But again, I'm always trying to think two
steps ahead. I believe that they're missing the big point
that, yes, banks are getting into crypto. But the crypto exchanges are getting into
banking. And they're going to hold all of the digital
assets.

That is the fast growing space, while that
traditional space is actually shrinking and losing market share. So I see that we're going to have a mix of
plays like Binance and Coinbase having exchanges and becoming these neo-banks that are global. And then we have decentralized platforms like
Synthetix and the wallets. And there's just this spectrum where we've
got all the payment rails for investing, trading, all sorts of digital assets. I'd love to get your thoughts on all that. KAIN WARWICK: Yeah, I had a tweet storm that
I posted maybe a month or so ago about this. I was talking about the fact that you've had
two decades of fintech progress, right? And it hasn't been much progress. It's really been like these overlays on the
legacy infrastructure. They've been really hampered. Fintech companies have been really hampered
and oftentimes tried to avoid the legacy infrastructure.

If you look at something like TransferWise,
they're trying to avoid international payments by doing local payments and then matching
them up. It's just craziness. And instead of just having a blank slate where
you can actually innovate on, which is what Ethereum offers you, you've had to kind of
hook into all of this legacy infrastructure. So I think only in like the last 12 months
have we had something that is viable for a new project or a new protocol or a new business
to show up and say, this is how we want to do it with no constraints.

We don't want the legacy infrastructure that
we need to integrate with. We want to start with a blank canvas and build
something from scratch. And what we're seeing is that when you do
that, it's orders of magnitude better than being constrained by these legacy systems. So I think that the combination of being able
to use stablecoins to connect to that legacy infrastructure, and that being that kind of
money API that arises, plus all of this innovation on Ethereum where you can kind of do whatever
you want and there's no constraints– it's going to allow for new business models, new
types of experiences for end users that we can't even contemplate right now.

It's just going to be amazing. And so it's really going to just open this
Pandora's box of innovation. ASH BENNINGTON: Alex, Kain talks about the
hybridization of the banking system. About how cryptocurrency digital assets are
merging now with the traditional banking system. He talks about things like Tether and Circle
coins, USDC becoming the rails potentially for future money transfers. And he says either one of those are going
to be 10x better than the current SWIFT system. What are your thoughts there? ALEX SAUNDERS: I completely agree. Synthetix is a project that I've followed
since the very beginning. And when it was just going for those stablecoins,
I didn't really see it as a grand vision. But then when Kain started to talk about this
idea of synthetic assets and we can have a synthetic euro and a synthetic yen, and then
we have these pools of assets that the Synthetix system creates. And anyone can change one of those for another. So all of a sudden you're starting to build
out liquidity.

And then you have the payment railes where
anyone can change any of those coins between each other with just a smartphone or a computer. You think about the SWIFT system or any payment
system, and then we go into the fintech world where we have these other layers. All of that is just immediately disrupted. And it becomes peerto-peer, whether it's a
bank or an individual sending a dollar to someone else anywhere on the globe. We're now starting to scale this system. And again, Kain and Synthetix are at the forefront
of that. They've solved a lot of the problems. And now it's just about education and adoption. And that, again, is an absolute revolution. A lot of people are just completely unaware
it's there. ASH BENNINGTON: Raoul, this is another topic
near and dear to your heart. The hybridization of digital assets in the
traditional financial system.

What are your thoughts on the way this is
starting to come together? RAOUL PAL: I'm not sure of the future of stablecoins
if the central banks do what they want to do. Because they actually solve the problem. They'll allow a fintech layer that Alex is
talking about. So I can send Alex an Aussie dollar directly,
digitally, via a wallet that will do the instant transaction. So I'm not sure of the value of that. But I'm sure that the technology that all
of these guys are building for the applications layer of this kind of digital currency, whether
it's a stablecoin or a central bank digital currency– that bit is going to be the battle.

Because there's some super interesting things
between wallets, transacting, swapping currencies, instant payments, all that kind of stuff. I don't know. Maybe they all co-exist together because they
have different benefits. The anonymity, for example. Maybe they don't. But it's going to be one of the big battle
zones for the next five years, how this thing plays out. ASH BENNINGTON: Yeah. One of the fascinating things about that,
I think, is that no matter how that battle plays out, whether you have a clear winner
and a clear loser, whether you have a winners and losers taking up different areas of the
space, the future pretty clearly seems to be assets moving along these digital rails
with block changes as the backbone.

RAOUL PAL: How can it not be? The speed, the efficiency, everything about
it. The ability to put all the fintech layer over
the top. How can it not be? It's laughable now, the transfer speeds of
the existing banking system to this. It's crazy. For me to send Alex an Aussie dollar is a
total pain for me. But in that system, even just with the stablecoins
that exist now, it's literally a few seconds.

And my god, that's a different world. ALEX SAUNDERS: I think one thing that Raoul
is getting at is we've seen from the People's Bank of China that have launched the digital
yuan recently. And they've already come out and said they're
going to try and stamp out any other competition. So any other digital yuan sort of version
or ped coins. But you can't do that with the fully decentralized
systems like Synthetix are creating. So they can try and stamp out all the other
ones and say no one else is allowed to do this.

But how do you ever stop a synthetic version
of something that's everywhere and nowhere with the decentralized philosophies and properties
that we talk about? And they're not going to be able to stop the
decentralized versions of these. RAOUL PAL: No they might be stop Chinese people
from using it, because they have control of the internet. But they can't stop me sending you a yuan. It's almost impossible. The question is whether me as the stablecoin
provider gets access to those yuan or not. Who knows? But it's just going to be very interesting,
for sure. ASH BENNINGTON: Yeah. This is a conversation that I think we could
probably talk about for hours in itself. But just to move on, because we've got so
much more content here to cover.

Next up we had Alex sit down with Hudson Jameson,
community manager at the Ethereum Foundation. HUDSON JAMESON: I think enterprise is a really
important piece to the puzzle when it comes to Ethereum's adoption, for sure. You mentioned Ernst & Young. I participated as a moderator at a conference
that they put on recently for enterprise blockchain adoption. And the technology they're doing with zero
knowledge proofs, which enable private transactions on Ethereum, is groundbreaking. It's really, really cool stuff. They've made it a lot cheaper to accomplish
that, which I found really impressive. And the teams are just really solid, nice
people. From the Baseline perspective, I am on the
technical steering committee for Baseline. So I help shape the direction of the technical
aspects of Baseline and some of the decisions around maintainership and other things.

I also do some stuff within the community
for Baseline, like run some of the chat rooms. I'm pretty familiar with the Baseline protocol,
and I think it also is a very good product that enterprises can use to really quickly
jump in and get private transactions and other features on Ethereum that enterprises need
to be able to cut down their silos and have this what John Wolpert, who is another major
Ethereum enterprise figure, would call the magic message bus.

When you're at an enterprise– I used to work
for a bank for two years. And I would literally have to deal with like
a dozen systems to get one thing done. If you're having a message come from maybe
your checking account to deposit a transaction, it has to go through 12 different systems. And with blockchain and Ethereum, people don't
realize this can break down those silos. You can have one ledger that has the truth
in it. And within that, you can build business logic
around it in order to encapsulate that and send it over different areas of your company
without having to sacrifice different system types and have it go through IBM system and
then go through HP system, and then go through this message format.

You can kind of standardize it all into one
system using Ethereum, eventually. I still think it's very early for enterprises
to fully adopt it. I think there's definitely some niche use
cases that are very powerful for enterprise Ethereum at this point. But Ethereum 2.0 is going to open a lot of
opportunity for further enterprise adoption. And it's going to be something that I'm really
looking forward to seeing in the future. ASH BENNINGTON: I really enjoyed this interview
with Hudson, especially when he was talking about the single layer that can underlie the
entire system for, basically, understanding who owns what and when. There's extraordinary duplication that goes
on at banks. Anyone who's worked at a bank knows there
are 22 different systems to keep track of things. And if you think about multiplying that number
times all the banks in the world, it's just extraordinary. The amount of duplication of effort, the amount
of waste, is kind of mind-boggling. So it's such an obvious use case.

Alex, you conducted this interview. What were your thoughts? ALEX SAUNDERS: I think sometimes, people forget
that it was only in the last couple of years that Ethereum set out these standards, and
they caught on like wildfire. So you've heard of ERC20 tokens, and now we've
got the ERC721, and the NFTs, and the gaming tokens, and we've going from there. So once you have those standards, then it
gets rid of all those 22 different banking systems. Or, go into another industry. How many different accounting or legal softwares
are there? And so we're starting with this new framework
from scratch.

People like Hudson and the community are the
heart and soul of Ethereum and, in some ways, trying to coordinate the decentralized ecosystem. But I just think, again, this is something
that hasn't really ever been done before on a global scale. The first shoots, green shoots of this are
now coming out. And some of the things that we're seeing are
mind-blowing, and I just love it. ASH BENNINGTON: Yeah, very well said. More about gaming to come up next. But Raoul, you've spent a significant portion
of your lesson working in banks, at hedge funds. Extraordinarily inefficient in the way these
back-end systems actually execute and move money around. What are your thoughts on this? RAOUL PAL: I think banks are going to be fast
adopters of a lot of this, because it actually just solves a lot of problems for them. I mean, everybody thinks the banks are going
to get entirely disrupted by this whole new revolution.

That doesn't understand how smart a lot of
the people are in the banks. ASH BENNINGTON: Right. RAOUL PAL: I think the middle tier and smaller
tier money center banks, it's all over for them. They'll never win. They just simply cannot compete, because they've
got all these legacy costs. But the leading banks like JPMorgan, Goldman
Sachs, those kind of guys, they're going to embrace this, because they understand how
to drive margin, and they understand how to drive efficiency. So they are going to be players in this space. ASH BENNINGTON: Yeah, that's extremely well
said. So many people have set this up as an adversarial
relationship, as a zero-sum game, as a head-to-head confrontation between the big global bulge
bracket banks and these distributed systems. You've been very nuanced in the way that you've
talked about this, the idea that this is something that's going to be adopted. It's going to be brought into the fold, and
it is, as you said, going to be used as a key way for banks to create more margin.

RAOUL PAL: I mean, look, these guys are very,
very smart. They completely understand what this all means. And they are just waiting to decide where
they're going to move and how they're going to move. So yes, it will take out a huge part of the
banking system, much like many other technologies took out– media companies got destroyed by
video, and all sorts of things have happened. It'll be the same. But we will see new entrants coming from the
fintech space that will compete on a living level playing field with some of these banks,
too.

ALEX SAUNDERS: I think it's fascinating what
Raoul was saying about how it's going to cut out a lot of the smaller players. And I agree, in the retail banking sector. And one thing that myself and others have
been saying is this idea of no one wanting to be first, but then, no one wants to be
last. And in the past few weeks, we have seen that
just absolutely come to life.

So not only with the banks. We've got the Bank of Thailand says they're
getting into DeFi. And then it's the neobanks, and then it's
the fintechs. And now we've got the central banks getting
into it. And so it's that tipping point where it's
the people that are probably going to be disrupted the most are saying, well, we've got nothing
to lose. Let's try and gain some market share and go
first, even if they end up being the ones that are disrupted.

And that, again, it's just that snowball effect
that is now really starting to accelerate. RAOUL PAL: And look, lots of huge change like
this, where it's a lot of uncertainty lies huge opportunity and huge risk. So it's a very exciting space when you see
massive disruptive change, and some of the incumbents will win. Some will fail. Some of the new entrants will win. Some will fail. We love that, right? That's a great opportunity. It's a level playing field where you take
your bet, you do your research, you find the opportunities, and you go for it. ASH BENNINGTON: And now for something completely
different– from banking to gaming. Alex spoke to Witek Radomski, CTO and co-founder
of Engine. [DIGITAL EFFECTS] WITEK RADOMSKI: And so what
we decided to build, once Ethereum started really getting traction, we started building
this system for people to actually own items inside of games– to own those assets. So instead of things like owning Bitcoin,
like a cryptocurrency, you're actually going to be owning things like swords, and hammers,
and shields, and armor, maybe characters, or all kinds of concepts you can own inside
the video games.

ALEX SAUNDERS: Absolutely, and we'll get into
that a little bit more. That's really important for people in homes
to understand, that ownership that you have never been able to do before, particularly
when we take it a step further into what we call the gaming multiverse, where we're going
to have all those different games. Think of it like a parallel universe where
you can go from one game to another and take with your items, your, even, reputation and
experience that you can earn in different games. So do you want to talk about the multiverse
a little bit for us? WITEK RADOMSKI: Sure. So this is a cool thing. I mean, when you're on the blockchain, when
you have things on the blockchain, they're open to the public. Anyone can see that data. Anyone can see who owns an item, and anyone
can read that and integrate it into their own apps. So if one game makes something like a sword,
another game can actually integrate that sword into their game as well.

And you could have many different games actually
sharing these items. So if the game chooses to support something
that you own, you'll be able to actually bring it across into different games. So it's literally like the real world. If you have a piece of clothing, or if you
have some sort of tool, you can actually bring it with you into different places. Now, you can actually do that with games. And you can build a lot of really cool stuff
on top of that. ALEX SAUNDERS: And the aim of this, I guess,
bit of content that we're producing is to get these concepts across to people that aren't
familiar with blockchain. But a lot of people aren't going to be familiar
with gaming at all. So when they hear these type of things, they
think, well, who would buy a piece of clothing in a game? So just maybe explain just the Cambrian explosion
we've seen in the gaming space, virtual reality, and how much money is already being spent
on in-game items? WITEK RADOMSKI: Yeah, I mean, this is a real
big thing.

I mean, a lot of people right now are playing
online games. There's all sorts of interesting games, whether
it's RPGs, or battle royale games, or any kind of thing they're playing. And a big, interesting component is now skinning
your character, for example– putting a fancy hat on your character, or having your own
special kind of weapon. So this, right now, in those games, you kind
of own those things on your character, but they're stuck in that game. They're stuck in that world.

If your account is deleted, you lose that
item. But now, with blockchain, you can actually
own that on your own personal wallet that nobody can ever take away from you. And I think that this is a huge, powerful
thing for blockchain for games. So basically, imagine, you're playing some
game, you pick up all these items over the months, and now you want to trade them to
your friend. Maybe you want to trade him– he has some
really cool piece of clothing you like in the game. You have a cool weapon. You can actually just trade person-to-person,
or online, you can trade with each other. You can sell your item on marketplaces. And another cool thing about these items is
that they actually open up new kinds of gameplay, new kinds of markets. I mean, some people play video games, and
you gain these items, you want to actually start being some kind of seller or trader
of these items. That opens up a really cool universe that
really doesn't exist. ALEX SAUNDERS: Yeah, we should probably explain
to people at home that skinning has a very different definition in the gaming world.

So that can refer to the color or the texture
of your sword or the clothing you're wearing. And kids these s– or even adults so I guess
guess they're living more and more their lives online. And this idea of identity, or building yourself
a unique character, people spend a lot of money on this type of thing. And like you just touched on, some people
turn that into their full-time job, finding the different items or selling the experience. It's actually funny, for me, watching this
go full-circle from something– in the very early days, people might not know, you could
actually get free Bitcoin in the gaming world, in World of Warcraft, up until about 2013,
I think it was. So did you ever play that game and get some
free Bitcoin? WITEK RADOMSKI: Yeah, I played a lot of MMOs
back in my earlier years. And I know people were selling their characters. They were farming items. I wasn't actually aware you could get Bitcoin
with them, but I assume people were trading items for crypto back then.

ALEX SAUNDERS: I think you could actually
get free Bitcoin from a faucet in World of Warcraft. WITEK RADOMSKI: Oh, that's cool. ALEX SAUNDERS: I never got any, but I'm sure
some people watching this will know exactly what I'm talking about. WITEK RADOMSKI: That's really cool. That's really cool. ALEX SAUNDERS: The other thing that this opens
up that we touched on before is the multiverse. And this isn't just for the players to take
their items and reputation, experience, from one game to another. It's huge for the developers. And I think we often talk about Bitcoin and
cryptocurrency as taking the power away from banks and financial institutions, but there's
those sort of issues that exist in the gaming world as well. As a small developer, it's really hard to
compete with the big guys in a lot of ways, isn't it? So do you want maybe talk about all that and
how this can level the playing field for developers? WITEK RADOMSKI: Yeah, I mean, there's a lot
of people making games, and there's a lot of companies with extremely huge, movie-level
budgets building games right now.

And at the same time, there's a lot of tools
like Unreal Engine Unity where people with a great idea can actually make a game. Now, instead of having a massive advertising
budget, you can actually build a community by selling, pre-selling your items in your
game to people in the community. And you create these items, you put them up
on some kind of website, or Kickstarter, or marketplace, you can pre-sell them, get some
funds for your game, and then continue building the game. And those people are guaranteed to have those
items later on.

[DIGITAL EFFECTS] ASH BENNINGTON: Alex, I
got such a kick out of this interview, because it's a world that I have nothing to do with,
but it's fascinating to me. Because I watch my friends who have teenage
sons, teenage daughters, and they're just obsessed with the virtual universes of games. What were your takeaways from this? ALEX SAUNDERS: Yeah, I think it's a new concept
for a lot of people that haven't dived into that world of gaming before, but you can already
see that this is expanding bigger than just gaming and a little bit of fun for kids. This is going into the business world. We're currently in the world of COVID, and
social distancing, and business is by meeting. Maybe you're going to have to have more of
this idea of social gatherings virtually if this continues into the future. But then, I think the idea of the metaverse
expands even bigger than that, where it's now, you've got these set of standards, whether
it's the Ethereum world or other blockchains. I think you can see social media– maybe Facebook
becomes part of the metaverse.

So all they have to do is add these standards
where they can interact with that blockchain and that ecosystem, and they become part of
the metaverse. And if they have these billions of users,
and there's millions of their customers that love this game, then the two worlds are going
to collide. And they don't even have to, because it's
all within that one metaverse universe where they can take their games, experience, real
life.

Business sense, entrepreneurism, all those
stats are going to be on a blockchain. And to me, that just opens up possibilities
that we don't even know are going to happen yet, and they're probably going to happen
within the next year or two. RAOUL PAL: I find this space absolutely fascinating,
right? I turned up to a friend of mine's house Saturday
afternoon, and his son, who is 14 years old, was in his gaming chair– it was on a Saturday
afternoon– in his gaming chair, headphones on, microphone on. And I'm like, Daryl, why's your son not out
playing football? What's he doing? I didn't understand this. I don't have kids. So he's like, no, he's been out playing football
this morning, but now he's hanging out with his friends.

I'm like, what do you mean, hanging out with
his friends? He goes, oh, they all hang out on Minecraft. I said, what do you mean, they hang out on
Minecraft? He said, he's got friends all around the world,
and they all hang out for several hours a day chatting, buying skins, exchanging things
of value in the digital world that– I'm like, really? And it's like, yeah, they don't have a difference
of understanding between the digital world and the physical world. And I've always explained this by the fact
that we grew up on television.

So when we see a TV actor in the street, we
think of them as the character, because we confuse that world. But these kids have grown up in a world where
Alex is talking about where right now, they hang out playing games. But that same generation of Gen Z is going
to be doing many things digitally in a world that we don't yet understand and we can't
comprehend.

And again, as Alex said, the way things, things
like Decentraland are coming, where you can buy assets, trade them, be involved in commerce. You're going to generate new forms of making
money and income. And I mean, gaming has been so far ahead. The two industries that have always led everything
is gaming and porn, because they've understood business models really effectively, and they've
been much more ahead of many of the others. So I just think this space is incredibly interesting,
and it's a peek into the future. ASH BENNINGTON: Yeah, you guys set this up
so beautifully. It's digital socialization– the fact that
we're going to be experiencing these virtual worlds– and then this idea of virtual scarcity–
the ability to create assets that don't exist in the real world or that tie to assets in
the real world.

It's such a fascinating space. And as these kids grow older, and enter the
workforce, and become involved in finance and investing, it's hard to know where this
will ultimately end. RAOUL PAL: But look, a simple thing, right? You might go out and buy a Rolex watch. You perceive it to have value. The actual manufacturing cost is nothing like
the cost that you pay for it, because it has brand value to you. So humans are stupid. We all need status, right? So I think this gives me status. You may laugh at me for it and say, why didn't
you just buy a Swatch? And that's what humans are like. ASH BENNINGTON: Right. RAOUL PAL: There is no difference to a Gen
Z in the digital world to pay for a skin that is perceived to have value. There is no extra difference in that. It's status, and humans always flock to status,
because we're tribal. ALEX SAUNDERS: Yeah, one thing I want to add
on is even just in the past few weeks since we started talking about this, we've seen
a lot of the world's biggest DJs jump on board.

And they're starting to play and have these
concerts and meetups in the virtual world. You said adult entertainment, and it's always
a topic that's a little bit taboo. But it's many of these industries that are
just ripe for disruption, because there's the middleman, and rent-seeking, and pushing
into the shadows of the financial world. So that is a far better system for that industry. And then, finally, we've got this idea just
in the past couple of weeks of these social media influencers or characters that aren't
real people.

So all of a sudden, you've got your cartoon
characters. This is where, again, the traditional businesses
and those giants of the world are going to want to get involved and bring their assets–
their cartoon characters, anything that they own the rights to, or these AI, these virtual
people that don't exist in the real world, and now they're social media influences or
they're virtual world influencers. They're getting paid by the companies. They've got more followers than some of the
influencers in the real world, and they don't exist.

So that is just, again, a complete narrative
shift that's mindblowing. RAOUL PAL: Yeah, just one more that, just
written down a list of the things that are all converging at the same time, which is
a lot of what you've done in this documentary, Alex. So blockchain is this backbone. And then we've got money. We've got gaming. We've got social networks. We've got legal. We've got supply chains. We've got intellectual property. They're all converging into one thing. I mean, it's mind-blowing. ALEX SAUNDERS: There's this idea of the protocol
sink that a few of the guys that are heavily involved with the Ethereum ecosystem have
come up with this thesis. And what it says is that the best protocols
sink to the bottom. And so maybe you've got Bitcoin at the bottom
of all these different protocols, because it is the ultimate foundational store of value,
whatever you want to call it– reserve asset. And then you've got Ethereum that settles
on top of that. And then you've got the games that can build
on top of that, the legal stuff, the adult entertainment.

Maybe that builds on top of the virtual world
and gaming protocol. And just the best protocols sink to the bottom,
and they're the foundation all– the same as a building needs strong foundations– for
everything else to build on top of. RAOUL PAL: Absolutely. ASH BENNINGTON: And all of it, of course,
accelerated by COVID, virtualization, and social distancing. To talk about how the traditional the traditional
world ties into the virtual worlds that we're discussing now, Alex spoke with Paul Brody,
principal and global blockchain leader at E&Y, talking about privacy for the enterprise
and contributing to the open source code that's in the Ethereum public chain. [DIGITAL EFFECTS] PAUL BRODY: No, I mean,
it wasn't that simple, right? In fact, if anything, was super controversial
inside of EY for us to get– to spend millions of dollars building something and then give
it away. But the reality is, if you want people to
use something, and you want to speed up a transition to a future market state, you've
got to do something to put that in people's hands. And unfortunately, one of the things that's
happened over the last few years, which is very sad, is that people have started to insert
these terrible gotchas in their open source licenses, right? It's like they're playing open source licensing
games where they say it is open source, but it really isn't, or it comes kind of like
it's like a poison gift.

And so in conversations with other parts of
the regulatory parts of EY, and talking about how we drive adoption and how we maintain
our distance from our audit clients, the conclusion was the best thing to do is to put it into
the public domain and to have a bit more of a hands-off model. So we can contribute insights. So we don't control this technology, we don't
own it, and you can use it however you want. And the nice thing is, you don't need a squad
of lawyers to read the open source license agreement to look for gotchas because there
is no license agreement. It's just available. ALEX SAUNDERS: That's absolutely– PAUL BRODY:
Not that I have anything against lawyers. I married one. They're wonderful people. But we need to make it easy. It's frictionless adoption of technology,
is what we're aiming for. ALEX SAUNDERS: Absolutely, and that's going
to drive that next wave of innovation. So you guys are also building other tools,
as well as what you've got open source. But maybe I'd love to get your thoughts on
the first iterations of Nightfall, and making payments a little bit more private, versus
going that step further and making the smart contract logic for businesses and those sort
of operations private with the Baseline protocol and all that we've seen recently in the news.

PAUL BRODY: So we always had a kind of a strategic
roadmap. We said, OK, if you think about how companies
do business, right, there's a classic model. I have money. You have stuff. We are going to exchange those subject to
the terms and conditions of a contract. So if you think about that, there's two things
that are going on. Number one, we want the exchange to be private,
right? I don't want my competition to know what I'm
paying you or how much I'm buying. That's very sensitive information. The second part of it is the core content
of the contract itself, right? If you can read the terms and conditions of
our smart contract, and you can see that we agreed upon a certain set of prices, you already
know as much as you need to know without even knowing how much we actually bought. So we always knew that those two things had
to be kept private, and we just had to bite off one piece at a time.

And so we started with the basic, which is
got-to-have, the foundational component, which is the payments and transfers. But then, we very quickly, around the middle
of last year, were like, wow, we are approaching a price, a capability level, where this is
not just feasible, but it's scalable, and repeatable, and maturing nicely. And it's time to start thinking about how
we go to the next level, which is making the contract itself private and putting the other
pieces around it. So it's not enough that we have a private
contract and we have a private payment. We also need to be in a model where I can
be sure that I'm dealing within my supplier, that I have verified identity. So that was when we started to put all of
those pieces together, and that's what ultimately became– that's how we went from Nightfall,
which was this privacy core technology, to Baseline, which was a broader protocol for
private end-to-end, complex, multi-party business transactions.

ALEX SAUNDERS: And again, for the viewers
at home, I really want to drive home this point– that it's privacy which is a fantastic
leap forward, but that block space in– whether it's Bitcoin, Ethereum, or other blockchains,
it's a precious commodity. And the fact that we have this scaling technology,
as Paul's been describing there, where it compacts things down 1,000-fold more efficient,
and the gas price of using Ethereum, computer system, we think of this as to process and
execute that contract, it was very costly because of the gas price and that precious
block space you were taking up a lot of just to do one tiny little contract. So now they've integrated this technology,
it's 1,000 times more efficient. What are the conversations, how do they progress
when you're pitching these to a company that 12 months ago said this would never work,
and now, we're almost to that point where I'm sure it's going to get a factor of 10
or 100 better again and again, and we're really getting to the point where this is very usable? PAUL BRODY: The conversation with our enterprise
clients has changed so enormously over the last year.

And if you were thinking about a year ago
or 18 months ago, the conversation we're having is, if you want to get going on blockchain,
you can start on the private blockchain. And then, because we build on the Ethereum
private blockchain infrastructure, when public is ready, you'll be able to migrate, right? Now, the conversation has started to switch
to, you know what? Public is ready. Let's go directly there. So we've switched from this conversation of,
there's a migration path, to, go directly to the future state.

ALEX SAUNDERS: And there's an old saying that
nobody wants to be first, but then, nobody wants to be last. Is that playing out in real time, and we're
about to hit that S curve of adoption? I think there was a recent survey saying 80%
of companies have got, at least, a blockchain strategy now? PAUL BRODY: Yeah, it's so funny. We keep having this conversation with clients
where they're like, yeah, that sounds amazing. We just don't want to go first, right? And it always reminds me of the old Dilbert
cartoon, where Dilbert's like, change is good; you go first, right? And what's amazing and what's been good is
every now and again, you'll find a client that is willing to go first. And they are worth their weight in gold, because
they understand that there is risk.

They understand there's complexity. I will never be able to say enough good things
about the work we've done with Microsoft on the Xbox, because they were willing to go
first. And that's incredibly valuable. And they understood that there was a risk
involved there, but they also understood that they were pioneering a marketplace. So we're getting there. What's always rewarding is, once somebody
does go first, it's like the floodgates have unlocked. [DIGITAL EFFECTS] ASH BENNINGTON: Alex, lots
of talk about privacy as a prerequisite, as a table stakes to get into this space for
businesses transacting on public blockchains. What are your thoughts about privacy and how
it's going to shape this space? ALEX SAUNDERS: I think back in 2014, 15, in
crypto winter, as it was known, that was the time when, if all this was going to die, that
was when it was going to happen. And banks were saying, oh, it's the blockchain
technology. It's not Bitcoin.

And from that, I think it's all been spun
on its head, where it's gone down that path where they're all experimenting with private
forks of Ethereum and private blockchains, and now full circle, the biggest companies
in the world, Ernst HUDSON JAMESON: Young, are saying, you know what? We're building on the Ethereum public chain. Microsoft is saying, we're building our new
digital ID system on top of Bitcoin. And so they're recognizing that just like
the internet, that open public infrastructure and the network effects, that's where the
value comes from. Now, not only that, some of the problems where
people said, oh, the businesses will ever use these, because public blockchains, who's
going to put all their information out there for everyone to say? Or, they can't scale. And like always, the problem-solvers get to
work. A few months later, Ernst & Young come out
with this announcement, hey, we've built this enterprise package software.

We're going to open source it for everyone. It's scaled, and it's private. And then you just can't argue with that. It sort of puts all the trolls to bed. And since we've even recorded it, this space
moved so fast, they're bought out their next iteration of that software. So it just keeps improving at a frantic pace. They want everyone to use this stuff and get
on that network. I just love the people like that are doing
it from the enterprise world. ASH BENNINGTON: Yeah, I remember when people
said the same thing about the cloud. The cloud was something that no business would
ever adopt. Everyone was going to have a server in their
closet or in a data center, because that was what they can control. And then, clearly, a massive paradigm shift. And it seems to be happening right now with
the transition from the permissioned private blockchains back to public blockchains. RAOUL PAL: Yeah, I mean, it happened, also,
in intranet and internet, right? It's all the same.

It's basically all the same, because in the
end, an open platform is more robust, because it gets tested millions of times. So if you are going to make that bet, you
either have to build world-class security– and then, in which case, what was the point
of building on the blockchain– or you do it open source and let the community build
the most robust thing, ecosystem, possible. ASH BENNINGTON: Yeah, I've never been entirely
clear about the difference between a private blockchain and a database, anyway. RAOUL PAL: Well, I don't know. I see the value, because it is a database,
and that's OK. That became a very fashionable thing to say. It is a database, but if you've got three
or four parties on it, it's a notarized database. And that's better than a non-notarized database. And it happens pretty much automatically. It's nicely done. I think there's room for private blockchains. I don't have a problem with it.

And as Alex said, a lot of this gets solved
in the open source way. And I think your example of the cloud is a
brilliant example. ASH BENNINGTON: Yeah, Alex, to extrapolate
from what you said, is this something that we're going to see now opening up the floodgates
for public blockchain transactions? ALEX SAUNDERS: I think you've already seen
it. And again, it's there that people aren't aware
of in the background. There's latest stats from consensus, there
was 600 people using the public Ethereum chain already. So in the next 12 months, they're going to
come out with their first applications, and they're going to onboard some users. Yeah, it's all happening in the background. ASH BENNINGTON: Talking about transitions,
new paradigms, Alex, you sat down with Preston van Loon, co-founder of Prismatic Labs. You guys discussed a lot of things, but the
clip that we're going to show here talks a lot about the distinction between proof of
work and proof of stake and how that relates to the Ethereum 2.0 project.

PRESTON VAN LOON: Yeah, exactly. So proof of work is a really simple algorithm,
and it's really going to [INAUDIBLE], right? It's about solving this cryptographic puzzle. We have computers hashing data and trying
to find a partial hash collision, which is something you can't predict it. You can't game it. It's just the way it is. And that's probabilistically difficult. But as we've been saying, that requires a
lot of computation. The harder the difficulty gets, the more resources
you need.

And some people have even compared the energy
we're using on proof of work to that of small nation-states. So we can all agree that it could be better
in terms of the energy usage, but also, there's a centralization factor there. If the only people who can produce blocks
are these super, mega mining farms, then what does that really mean for the security of
the network? If I can't really participate, maybe I can
participate in a mining pool, but I don't really get to make decisions.

I have no mining power. You hear about miners who are voting on certain
things– none of that. Where, at least in E2, we get similar security,
so we have something at stake. If I act, and if I engage in bad behavior,
I'll be penalized. I'll lose my collateral. But at the same time, I also get to be, as
an individual, a participant block producer with only a small upfront cost. So I think that's pretty cool. ALEX SAUNDERS: Yeah, and if we dive into the
financial incentives, I think this is where we're going to bring in a lot of new interest.

So the numbers or the yield that you'll get
for having your Ethereum locked up or putting it at stake, and processing these transactions,
and getting the rewards, that's probably the best way for someone at home to think about
it. Depending on how many people actually do that,
the yield will vary, but the numbers are anywhere from a few percent up to 15%, possibly even
higher. So in a world of low interest rates, negative
interest rates, well, we've seen a lot of interest in other proof-of-state chains. So do you think about the financial incentives? I guess it's directly correlated to the security
of the chain.

So I'd love to hear your thoughts on all of
that. PRESTON VAN LOON: Yeah, I think the model
we have for the incentivization, the reward calculation, is great. I mean, we want people to join early on, and
you can think of this as it's probably going to be a year or more, or maybe two years,
before you can take your funds back out. But from there, you're pretty much guaranteed
to earn anywhere between 14%– maybe at the beginning, you're earning 14%– and as it
grows, it goes down slightly. When we're talking about having millions of
validators in the system, which is quite a lot, that's when you're looking at those lower
numbers– so 4% or 3%.

And even then, in today's real-world economy,
those kind of interest rates are hard to find. And even in DeFi, there are some major risks
with these kind of lending protocols and stuff. So with E2, you can earn some income with
a near-passive strategy. It's not quite passive, because you do have
to keep your machine online, but in terms of paying for it and keeping it up, it's really
easy. A lot of people on test nets are running on
$50 devices. So it's really not a difficult thing to do. ALEX SAUNDERS: That's a really important point
for people home to understand. The, I guess, capital expenditure, as you
spoke about before, buying an ASIC Bitcoin miner that might cost a couple of thousand
dollars, then your energy costs versus someone that might be able to run and Ethereum note
and stake for $100, maybe less. The other thing that I wanted to dive into
in terms of the monetary policy of ETH 2.0 was the proposal around using the fees to
possibly burn. And what that will do is, depending on how
many transactions are going through the network and how much gas is being used, it could actually
see Ethereum's, I guess, net inflation rate being 0 or even net negative if there's a
lot of use on the blockchain.

So I think everyone's sort of familiar with
the stock-to-flow model now, and scarcity, and why that gives Bitcoin a lot of value. I've actually modeled the Ethereum stock-to-flow,
and it is higher than Bitcoin if we get to this point where we have people staking and
then the fees being burnt. So look, that isn't the only thing that gives
a cryptocurrency value by any means at all, but I'd love to get your thoughts on that.

Have you sort of modeled that yourself and
seen the stock-to-flow arguments? PRESTON VAN LOON: Yeah, I've certainly seen
those arguments, and I think it's a great idea to have a stable currency, or even a
deflationary currency. It makes sense. At the moment, we're paying a pretty high
premium for the network security. So we're paying a lot in fees and in block
rewards to the proof-of-work miners. But it doesn't necessarily need to be that
way in this new proof-of-stake model. And overall, we think that's probably a better
idea. So I'm really excited about that personally. [DIGITAL EFFECTS] ASH BENNINGTON: Alex, I'm
just going to throw this one back to you. Give us your view of what this technology
is about, why this transition from proof of work to proof of stake is so important, and
what it is that we should be looking for as Ethereum 2.0 moves forward. ALEX SAUNDERS: I think most people are probably
familiar with the idea of Bitcoin and proof of work, where the computers are using a lot
of energy to solve those equations and keep the network secure.

And I don't believe there's anything wrong
with that if there's a lot of, I guess, renewables that are running that network, so it's not
completely wasteful. But at the same time, we've got this ESG renewable
movement. So that is one component of it that's going
to make Ethereum moving to proof of stake more attractive. Then you've got this idea that when people
lock up their coins and put something at stake to get a reward or a yield, that's also very
attractive in a world of low or negative interest rates. Then you've got the technology play, where
those technology stocks in this new world that we live in, they're the ones that are
seeing the most capital go to them as well. The innovation, everything's moving to this
digital world. So there's two, or three, or four themes that
are all tying together that, I guess, just complement this move that was always on the
Ethereum roadmap.

It's had a lot of setbacks. But we're finally there where we're launching
the first phases– or phase 0, as we call it in classic Ethereum fashion. So that is being rolled out, and hey, the
next two years are going to be very exciting in terms of what that can do to help scale
the network, to complement how the old ecosystem is also scaling. RAOUL PAL: I think this is one of the things
that people don't need to know and don't care about. The problem with this space, it's too driven
by the technology and the underlying smartness of it all.

I mean, I don't care how Dropbox or Amazon's
cloud service works, what applications they use. What I know is they're trusted by the community,
so I trust the various communities because they would have abandoned it if not. And I think we need to be careful in this
space not to overcomplicate everything. Now, it's very important to understand what
these things are if you want to know more about it. But does it make a difference for the general
person to understand when they're using it in a consumer-level layer? I don't think so. It's the difference between the iOS operating
system and the Android operating system. Do we need to know? Not really. Can we make a choice? Probably. So that's how I feel. And that's not to belittle either one of these. It's just like it's too much information for
a lot of people, particularly when it gets more complicated. ASH BENNINGTON: Yeah, we've been driving cars
for 100 years.

Most people still don't know how the internal
combustion engine works. But Raoul, listening to Alex talk, one of
the things that I was thinking about as a meta theme that you've identified is the ESG,
rising tide of ESG. I'm curious, does that seems like something
that could be a potential boon for this technology, if we can get proof of stake sorted out and
matured to the level where a proof of work is? RAOUL PAL: Yeah, I think it's a good point. I mean, although Bill Tai raised the point
that basically, Bitcoin is electricity in a rapper, right? Electro-money, electro-dollars. And that's OK, because you're actually valuing
the electricity.

If you weren't valuing the electricity, then
it truly is a wasted resource. And I think the moves in Texas towards using
the gas burn-off to create electricity will dramatically lower the price, move the mining
away from China where the state-subsidized electricity– these are all good things. But Alex's point is right. Particularly coming out of these consulting
firms like Ernst & Young, KPMG, and all these things, if they speak to clients, they know
the bells and whistles that their clients want, and many are under mandates. And the mandates are lower carbon footprint,
and Ethereum solves some of that. And it's just a nice plus point. It's not the key feature of it. Maybe at a technology level, it is. But at a top level, surface level, it's a
plus point. ASH BENNINGTON: Yeah. This actually transitions nicely into another
debate that comes out in the interview that Alex did with David Hoffman, chief operating
officer of RealT. And this is this question of the split between
the store of value function versus the medium of exchange function.

And this is a really interesting point, because
it gets into the core of the Bitcoin versus Ethereum debate. Proof of stake may be more efficient, Ethereum
may be more powerful in terms of the functionality, but there is a risk as we make this transition. Let's take a look at the clip. [DIGITAL EFFECTS] DAVID HOFFMAN: Watching
people debate about the stock-to-flow thesis, or stock-to-flow model, in the crypto world
is interesting. I don't really have too strong of an opinion
as to the legitimacy or validity of the stock-to-flow model, but I do understand that– and you
mentioned this a second ago– that Bitcoin started off as this peer-to-peer cash, right? It didn't really need to be a store of value;
it just needed to be able to transfer value.

And having some market cap, some value, would
allow it to achieve that means to an end. And that was the beginning of Bitcoin. And we saw that narrative split off in the
Bitcoin, Bitcoin Cash forks, right? One side thought that it was really meant
as a cash payment system, and the other side really thought as a store of value. Naturally, in hindsight, this is obvious. And maybe somebody in the moment was prescient
enough to really see this coming. But if you take that split, the Bitcoin Cash
and Bitcoin split, it's obvious which ones was going to work, because one of these narratives
means that everyone is going to get rich, and the other narrative is that we can all
transact with each other really easily.

And the transaction problem is solved. Venmo, PayPal, bank transfers, it's not hard
to really send money. It's the store of value thing that is really
missing from the world and what the world needs right now, as you said. And there's a self-fulfilling prophecy where
like the narrative, that the number-go-up Bitcoin narrative where a finite supply, capped,
undiluted supply, that narrative is really strong. Because that implies, that's the wink-wink
to everyone, that, hey, this thing is going to be really valuable. And that is rooted into every single cryptocurrency
platform. You need your native currency to be valuable,
because that is where you generate the walls, the protective walls, around every single
crypto platform. You get it from the value of the native asset,
right? And so the higher the market cap, the better.

And almost, it's something that should be
even attempted to be engineered into the system, right? The finite supply of Bitcoin is something
that is– Bitcoin is a very synthetic asset. It's an organic network, but the asset is
engineered specifically to capture value, specifically by that hard cap. And we see Ether, with this, A, proof of stake,
which is a mechanism– among many other things, it's a mechanism that means that security
costs very little. And also, like you said, with EIP 1559, which
is a reorientation of how transaction fees are managed on Ethereum, instead of paying
validators revenue for their service, we pay for them via issuance, and we pay them very
low issuance, because they don't have electricity costs because of proof of stake. And so I'm pulling a lot of things. I'm not really explaining. But the point is, in proof of stake, security
costs very little, and so therefore, we get to burn our transaction fees, which really
just increases the scarcity of Ether.

And these are really the two big differences
that are really the same with Bitcoin and Either. Bitcoin achieves its scarcity through the
hard cap, and you get to, as an individual, have assurances that that hard cap will always
be there in the future. But Ethereum and proof of stake slash the
burning of the tokens– excuse me, the burning of Ether for the transaction fees– gives
you some sort of speculation that this thing is scarce today, and it could be even scarcer
tomorrow. Where Bitcoin, people often say Bitcoin is
deflationary, but that's actually not right; it's just disinflationary. Whereas Ether, in this proof of stake, burning
fee model, it's actually an actively deflationary model, where Ether is designed to get more
and more scarce over time. And that theorized increase in market cap
is just going to increase the walls around Ethereum and really allow Ethereum itself
to be a self-sovereign platform.

ALEX SAUNDERS: Yeah, you've dived into a lot
there. And I think the speculation, the narrativechanging,
is really important. So we have people that, obviously, want to
get rich, but we have a lot of people who stay, once they've learned more and they go
down the rabbit hole. We have the experimentation and this open
market where anyone can fork and network, and I think that's really important. You can make the same argument that the Bitcoin
narrative has changed what makes it most valuable, but the same is happening for Ether, where
two years ago, you couldn't have Ether as collateral for loans. And we're saying that space change as well.

So what are some of the, I guess, newer utilities
that you're seeing for ETH? DAVID HOFFMAN: Yeah, yeah, and the narrative
conversation is really important, because we discover the narratives that are true about
these platforms. We don't make them true. The narratives, we learn what the right narratives
are. We don't really engineer them. And the narrative around Ether, the asset,
like you said, it has totally changed over time. It started off as just gas for the network,
because at the point, at that point in 2015, '16, and even early 2017, that's really all
it was. That's really all you could do with Ether. Then it turns out that a lot of these applications,
these quote, unquote "DeFi" applications, before they were even called DeFi applications,
they need assets to run on. You can't have finance without assets. You can't just have the tools and the logic
without the money or the assets that run through those tools.

And what's the most simple, easy, trustless
asset on Ethereum other than Ether? And so this is what me and Ryan Sean Adams
at the Bankless Newsletter, at the Bankless Podcast, has really been harping on, is Ether
is always going to have some sort of monetary premium based on the trustlessness that it
offers DeFi applications as collateral. And we've seen DeFi absolutely explode in
value. USDC, Stablecoins, Tether on Ethereum are
at all-time highs. Real estate, for my company, Realty, on Ethereum,
at all-time highs. We have all these off-chain assets on Ethereum
being used in DeFi, which is just fantastic, because we want people to have options.

However, at the same time, they don't really
seem to be displacing Ether out of these DeFi apps because of just the primacy of Ether
as a collateral type in Ethereum because of its native qualities. It's privileged. Because it was born at the same time Ethereum
was born, it has these privileged qualities that no other asset on Ethereum will ever
be able to mimic.

[DIGITAL EFFECTS] ASH BENNINGTON: Alex, David
Hoffman, what are your thoughts? ALEX SAUNDERS: I love that they are doing
the real estate, but there's so many assets in terms of that scope of what you can now
digitize. We spoke about the digital realm before. Now, we're talking about the intersection
of the real world. And if I can get that legal deed to my house,
and my car, and my business name, or even the domain name of my website, anything that
has value, you can plug that into the world of DeFi or the wider ecosystem and start to
lend or borrow against that, build reputation and trust. Everything just opens up from there. But then, in terms of Ethereum itself, a lot
of the Bitcoin crowd and myself as well– the whole ecosystem– are excited about stock-to-flow
models and how hard asset scarcity makes something valuable.

Ethereum is undergoing this transition where
the fees will start to be burned, and you don't need to understand how this is all going
to work. But at the end of the day, the supply will
probably be lower than Bitcoin, neutral, or even deflationary, and getting more scarce,
and reducing the total supply. So that aspect of it makes it, also, a hard
money. Now, there's many criteria, and aspects, and
parts of Bitcoin that make it more valuable than Ethereum, still. I don't think it's going to supplant Bitcoin
as the king and the primary asset. But it is going to make it more valuable and
trustworthy as that sort of oil of the ecosystem, of the new web, is the way that I think of
it as.

Or maybe silver, because silver has a commodity
aspect to it as well. But it's just got so many facets to it that
you can't really pigeonhole it. But yeah, it is very attractive what is going
to happen to Ether, as well as all the other assets on top of that protocol sink that we
just spoke about. RAOUL PAL: Yeah, it's interesting. When we look at the collateral layer, I think
of Bitcoin as like this super version of US Treasuries with no extra supply, and gold,
with less supply, that's instantly transferable, exchangeable, recordable, all of that stuff. And this layer, with Ethereum, I think, by
the very function that the whole DeFi system is being based on it, it's not such pristine
collateral, because there's going to be claims on a lot of stuff. But that's OK; it's still high-quality collateral. And I think that's the point in this. And I think calling it silver is probably
a disservice, but it has the commercial aspects and the other properties.

I think it ends up being a larger market cap
than Bitcoin, potentially, just because of the applications. That doesn't make Bitcoin less valuable. Bitcoin is constrained by its 21 million,
so it should be. So I don't know. It's very interesting, and I think what I
don't like is this whole space fights about one versus another. It's just simply wrong. They are both in the same space, playing different
roles. ALEX SAUNDERS: The conversation gets very
interesting when those assets that sit on top of the Ethereum protocol possibly become
more valuable than the Ethereum layer itself. So if we have trillions of stablecoins, trillions
of dollars of property, but Ethereum is only worth a trillion dollars, there's the incentive
to try and get more Ethereum, because you can possibly attack or get hold of those other
assets.

So there's always these forces coming into
play that are making Ethereum more valuable. RAOUL PAL: So my fear in that is it that sounds
like the derivative market to me, where you have more claims than there is underlying. So the underlying collateral is US Treasury
bonds. The average US Treasury bond is reused 32
times. And I don't know how re-hypothecation– yes,
I understand there's recorded ownership– I don't know how it works. But it concerns me to have too many claims. ALEX SAUNDERS: So that's a different system. So Ethereum isn't collateral for the house,
or the real estate, or the bond. The bond in the house in the real world is–
[INTERPOSING VOICES] There's only one claim on that item. But in theory, if you can overtake, if you
can own all Ethereum, and you own the network, and it's a trillion dollar, but there's $100
trillion dollars of assets, your incentive is to get all those nodes in that trillion
dollars take ownership of that $100 trillion of assets on top of it, if that makes sense.

That's the point I was getting at. But– ASH BENNINGTON: Yeah, if we want to
make things even more meta, I'm looking at a headline right now that wrapped Bitcoin
is now the sixth largest asset on the Ethereum token. So we see this weird melange, blending of
the two together. So after we dive into the weeds, now, to tie
it all back together and to bring us back to the 50,000-foot level, let's go back to
a final clip from Vitalik Buterin.

[ELECTRONIC EFFECTS] VITALIK BUTERIN: And
so the idea behind Ethereum was, first of all, instead of applicationspecific protocols,
we're going to have a general-purpose protocol that has this smart contract language. And the smart contract language would actually
be able to process, basically, arbitrarily complex computer programs, where these computer
programs would be able to have fairly complicated rules for, basically, how Ether, the currency
inside Ethereum, could actually be moved around inside of the system. And this would allow you to build fairly complex
applications. So one of the first things I was excited about
was, basically, the thing that today we call DeFi, though back then– yeah, back then,
nobody used the term "DeFi." ALEX SAUNDERS: Is there a– because this is
very high-level, complicated stuff, is there another easy way to explain for, maybe, the
beginners in the audience, or those that are non-technical, of why this is really important
from the basics of Bitcoin's scripting language versus what Ethereum allows you to do– those
properties of finality, and what is a smart contract? Can you talk about that? VITALIK BUTERIN: Sure.

So the analogy that I often use that things
like colored coins are kind of pocket calculator protocols. So they're protocols that do one thing, and
they try to do one thing well. And then, Mastercoin is like a Swiss Army
Knife protocol. So it has some larger set of things that you
can do with it, but it's still a limited list of features. But Ethereum is like a smartphone, right? It contains a programming language and a kind
of processor that can basically run code, that code can make it do complicated things. And because it has that ability to run general-purpose
code, you can build apps, and you can download apps that run on your smartphone. And in the same way, you can create a smart
contract where that smart contract is a piece of code, publish that code to the Ethereum
blockchain, and that lets you create applications where those applications can basically run
and run whatever they're going to code, or their business logic is, on top of the Ethereum
ecosystem. So it's much more powerful that way.

The world computer meme, it was a bad one,
because it's misunderstood. ALEX SAUNDERS: Right. VITALIK BUTERIN: Because people understand
"world computer" as like a computer that can meet the computing needs of the whole world,
which is not what we meant, right? What we meant is, it's a computer that is
accessible for or accessible by and allows interaction between the whole world. So the world computer is definitely a highly-specialized
computer, and one that can only do a few things. But the general goal is basically that people
should be able to, basically, use these kind of neutral, global, information-less protocols
as a way to build in different ways to interact with each other. So things like DAOs are basically the equivalent
of decentralized corporations running on a blockchain, essentially.

And some of these different kind of financial
constructions, basically, the idea is to try to create this kind of economic playground
and essentially allow people– communities of people or groups of people that want to
cooperate– to build and use the infrastructure that allows them to do that without having
to depend on a central party for the whole thing. ALEX SAUNDERS: Do you think those narratives
are stronger than ever, whether it's COVID, working from home, censorship on Twitter and
YouTube these days? Do you think all these driving factors, the
fundamentals, I just feel– maybe I'm biased– but they're just strengthening by the day
the need for Web 3 and decentralization? VITALIK BUTERIN: Absolutely. I mean the other one, the other kind of trend
I would add that strengthens the need for decentralization is this kind of greater internet
nationalism that we've been seeing. So pretty much every major country is looking
to block each other's services off the internet.

I, personally, really worry about that, and
I, personally, really worry that that sort of thing could really undo a lot of the gains
from globalization that we see, and, I mean, potentially even lead to people not understanding
each other more, lead to more conflicts down the line. So I think the platforms that allow people
around the world to all collaborate with each other and be part of the same ecosystem are
needed more than ever. [DIGITAL EFFECTS] ASH BENNINGTON: You know,
Alex, it doesn't get much bigger-picture than that– talk about the world computer, the
decentralization of corporations, and other types of protocols and assets.

Vitalik, obviously, very concerned about the
rise of internet nationalism and very interested in the rise of Web 3.0. What are your thoughts on some of those issues? ALEX SAUNDERS: I think the whole Bitcoin and
Ethereum narrative and decentralization was already very, very strong. But then, you look at the backdrop of what
is constantly in the headlines– Apple and Google getting dragged in front of Congress
for abusing data. We've got the elections and Twitter censorship.

Every angle you look at it, it's just ripe
for disruption in these decentralized platforms. People are now more aware of the privacy and
the data issues. So there's this– it's not like they've built
this machine that's awesome, but there's no use case. That use case is just waiting to onboard the
users now. And it's a matter of making that transition. And can they make the user experience, the
front end, the marketing? They're the next chapters of this story that
are about to unfold. RAOUL PAL: Yeah, look, I think this whole
space is bigger than money. I think it's the internet of trust. And so there are so many problems in the world
right now– whether it's fake news, whether it's deepfake photographs, whether it's the
owning of intellectual property online, whether it's money and the ownership of digital assets,
or real assets– I mean, it's endless, the number of problems that this is the solution
to.

Not all of them will work. Not all of them will get adopted. But the grand vision of all of this, the tokenization
of assets, all of this stuff, is enormous. And it offers us something different as well. It offers us a future that's different to
the one we have today. We all kind of know that we screwed up the
future, and here's a chance to do it all over again. And again, of course, we'll make mistakes.

But it's exciting, and it is also going to
give people an investment opportunity, something that doesn't exist now in overvalued assets
everywhere. I mean, even if you're a long-short equity
hedge fund, your chance of making alpha is zero. If you're a long-short token fund, your alpha
is astronomical in comparison. So this is a whole opportunity at every level
for everybody. And I can't think of anything bigger. ALEX SAUNDERS: Yeah, just on that, Raoul,
as you say, the inequality that exists in the world at the moment, and you just look
at the current downturn, and where all the money has gone, and the war chest that the
big tech companies have.

So whether it's from an investor point of
view or the individual user point of view, no longer do we have these corporate structures
where the money flows to the top and to the few. The value accrues to the protocol and the
users. It just makes that fairer system that we keep
talking about, and it's here in front of us. So yeah, very exciting. RAOUL PAL: The other thing onto that is, people
really distrust the central bank digital currencies. I think they're amazing, and they're also
terrifying. I think it's amazing, because you can change
fiscal and monetary policy, change the rulebook of economics, bring behavioral economics,
and you can incentivize people. It's going to change massively. You can give money directly to people.

Things change– everything comes with a bunch
of downsides, too. But all of this molded together is one of
the biggest periods of change we'll have ever lived through. The internet was the other one. It's truly mindblowing. ASH BENNINGTON: We've covered an extraordinary
amount of ground here today– different technologies, different verticals, problems, solutions,
the future, where we're headed next. Guys, what are your final thoughts on where
we are right now and what people who are watching this documentary should be thinking about
where we're going? First to you, Alex. ALEX SAUNDERS: After watching the space mature
for many years, the technology has got to the point where it is about to disrupt a lot
of industries and aspects of our lives. It's now about the user experience and giving
people things that they don't know what's under the hood, just giving them better apps,
a better way to live their lives, more privacy, better trust in the companies and things that
they interact with in the digital world. The components are all there. It's now up to the smartest people in the
world to put all these building blocks together and create games, businesses, jobs that are
just different to the way that we've done things in the past.

ASH BENNINGTON: Raoul, thoughts? RAOUL PAL: Never before have I ever seen something
that allows so many people to participate in massive change. To buy digital currencies and own them is
available, literally, to everybody, because of how low you can make the price, the decimalization. So you get to own a part of the future, and
it's not just owned by the venture capital guys or the big guys on Wall Street. It's all of us can participate. This is– forget everything you need to know
about any of this. But if you're thinking about, how can I benefit
from this without knowing all the technology or anything else, is it's giving you a stake
in the future, and we can all invest in it. That is something extraordinary. ASH BENNINGTON: I can't think of a better
place than that to end it. Alex Saunders, Raoul Pal, thank you for joining
us. ALEX SAUNDERS: Thanks, Ash. NICK CORREA: Thank you for watching this interview. This is just a taste of what we do at Real
Vision.

To learn more about the complex world of finance,
business, and the global economy, click on the membership link in the description. Give us 7 days to change your life. This will be the best dollar you'd ever invest..

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