In this Radar Podcast, I chat with Vitalik Buterin, founder of Ethereum and co-founder of Bitcoin Magazine. We met at our Bitcoin & the Blockchain summit in San Francisco to talk about the disruptive potential of the bitcoin and blockchain technologies. He also outlined some of the problems he’s trying to solve with Ethereum and weighed in on how the use cases of money are going to change over the next 10 to 20 years.
Buterin told me that his father initially introduced him to bitcoin in 2011, and he wasn’t immediately interested — in fact, he outright rejected it, thinking, “It looks like it has no intrinsic value, and it’s obviously not going to work.” As he kept hearing about, he decided to investigate more and came to the realization that ultimately led him to create the Ethereum platform:
I immediately recognized that the way bitcoin works is the way that money should work. It’s exactly the correct approach, where you have: here’s the address you’re supposed to send to, here’s how much you want to send, here’s the button to send it. It’s money made for the Internet, not like the credit card approach, where you just basically give everyone the details to take as much as they want from your bank account.
On a trip to Israel, Buterin encountered projects, such as Colored Coins and Mastercoin, using blockchain technology for things other than bitcoin currency. “They were trying to let people issue their own assets,” he said. “They were trying tack features on top, tack financial contracts on top.” The protocols, Buterin noted, were overly complicated and he realized there might be a better way: “You could make it much simpler just by replacing everything with a programming language, and then if you do that, then people can write as many features as they want in the programming language after the fact.”
In late 2013, Buterin began development of the Ethereum platform. In the process, he also created a new cryptocurrency called Ether. Buterin explained why the new cryptocurrency was necessary:
The reason why a new cryptocurrency was necessary is basically because the problem with the bitcoin protocol is that there’s no…you know, you can have a private key control a set of bitcoins. You can even have multiple private keys control a set of bitcoins. But there’s no way for a decentralized network to control them. It just wasn’t fundamentally possible to have some kind of system that just automatically says, if these particular conditions are met, then these bitcoins are to be released — because the bitcoins ultimately have to be controlled by somebody, and that somebody doesn’t necessarily have to follow the conditions. In order for there to be value inside of the Ethereum network that actually could be directly effective and controlled by these programs, you basically have to have a currency that’s made up to the Ethereum network.
Buterin also shared his thoughts on the future of money and his vision of how our units of account will change:
Money in general is this weird agglomeration of multiple different use cases, I think. The way economists generally split it up is by talking about units of account, mediums of exchange, and store value. Units of account, the idea there is, it’s the unit in which you denominate people’s salaries, you denominate debts, denominate prices for products, and so forth. The medium of exchange is the token that you immediately trade for stuff, and store value is what you dump your money into long term in order to protect your value and hopefully increase it.
I could easily see a situation, some amount of time from now, where there is a set of sort of standardized unit of account, and could be based on the consumer price index. Some of them could be run by governments, some of them could be run by companies, whatever. That’s why contracts would denominate things. Then the actual tokens that people use to make the transactions can be completely different. We see that already — we see US Dollar denominated contracts. I get a salary denominated in Swiss Francs, but it’s all paid in DCC. There, the medium of exchange could just be whatever is most convenient; it doesn’t have to be necessarily stable, if you’re fine with that. Store of value could really be anything. I think the real innovation here is actually trying to separate those things and realizing that there’s really a whole bunch of different things that you could use for each individual use case.
It’s really dependent on the fact that this whole thing is based completely on digital technology. When you’re dealing with physical coins, then it’s kind of hard to have this setup where, okay I’m going to pay you 100 units of the consumer price index. Okay, that’ll be 134.21 and you have to multiply. Here in the digital world, computers can just do everything for you. They can even exchange currencies for you. It’s going to be interesting.
Also in this Radar Podcast…
Following my chat with Buterin, O’Reilly’s Mac Slocum hosts a Three Questions segment with Elizabeth Stark, founder of StartBitcoin.org. Stark talks about the goals of the StartBitcoin project, the importance of decentralization, and explains why we need a good five to 10 years before we’ll fully realize the possibilities decentralization will bring.