Ethereum co-founder Gavin Wood on free Web3 and Ether-less Ethereum

[00:00:08] Zoltan Vardai: Hi there, and welcome back to another episode of Decentralize with Cointelegraph. I’m Zoltan Vardai, and today we’re speaking with Gavin Wood, the co-founder of Ethereum, Polkadot, Kusama and Parity Technologies. In recent years, Wood has been actively working on Web3 individuality solutions and the development of the Polkadot blockchain. His biggest hope is to make crypto transactions free so Web3 can become a socially beneficial public good available worldwide. During our interview at the Web3 Summit in Berlin, he shared his centralization concerns related to Ethereum and how we need to divorce Ethereum from Ether to make crypto transactions free and onboard the next 6 billion users. Without further ado, here’s my conversation with Gavin Wood.

[00:00:53] Zoltan Vardai: One of my burning questions is, you said that basically creating airdrops and making fair airdrops is quite difficult right now because, I think the way you put it is we don’t really know the real individual that’s behind these accounts or the real identity. I’m guessing that, what your solution is coming up next year with these identity solutions, is this the way towards getting rid of airdrop farmers and airdrop squatters? Because we’re seeing reports that some of the airdrops are filled in 70%, 80% with airdrop squatters who don’t translate into long-term community growth. Is this one thing you’re hoping for?

[00:01:23] Gavin Wood: I wouldn’t say that the point of individuality is to optimize airdrops. I would say it’s an advantage. The point of airdrops, I would presume not ever having actually done one, is to maximize community, which basically means maximizing the number of people that see benefit enough to actually join the community and carry on acting as community members. And the more that your airdrop resembles a power function, with giving to the people that already have lots and not really giving very much to anyone else, the less your airdrop is going to be successful in attracting a larger community. So, the more that we can actually make this a flat function where literally one person gets whatever it is, $1, $10, $50 worth of value, the more it seems to me that this can be optimized. Again, it’s not something that I think is a desperately burning issue, but I do see it as something that is very valuable to teams that want to build community first.

[00:02:12] Zoltan Vardai: I completely get your point that this isn’t really the main purpose of building individuality, but for my readers who are mainly mainstream, who may have come during the last cycle, they probably understand about true identity, but not luxury, individuality, that role. For those people, what’s the difference, and what’s like the biggest advantage?

[00:02:29] Gavin Wood: Identity is who you are. In some sense, it’s your name, right? It’s how people recognize you apart from somebody else. Individuality ignores our differences and looks simply to our similarities as being humans, attempts to make us countable but not recognizable. And this is the big difference. And it can be so useful to be countable and, particularly, countable without being recognizable. This is the basis of modern democracy. This is the basis of the ability to protest, is the ability to be counted without the ability to be recognized. It’s how people as a whole provide their sentiment to those in power, those who control. Voting is exactly this. It’s the ability to be counted without being recognized, because as soon as you’re recognized, you’re weaker. And this can detract, and then, you know, nowhere can you find a better example of this than in certain states where protesters are essentially illegal, punishable by prison or worse. I’m not saying that this is like, could be an important, an important element of that fight, but that’s not what this is about. This is about ensuring that this facility is available within the digital realm, within the Web3 realm, so that we can create effective socioeconomic systems. And this is, in my mind, what Web3 is all about. It’s about creating novel socioeconomic systems.

[00:03:57] Zoltan Vardai: That’s a great perspective. And just switching back to this first principle issue, which was actually adoption, we obviously need individuality without necessarily being recognized in every economic transaction. Would you say that from a first principle perspective, this is the main thing holding back adoption? Is this like the building block that’s missing? Some people say it’s UX, some people say it’s privacy.

[00:04:16] Gavin Wood: I would say that there’s a lot of building blocks that are missing, but I do believe individuality is a crucial one if we are to see significant mainstream adoption. Like, absolutely, I would not be focusing on this otherwise. It’s such an incredibly foundational, fundamental facility that in any social and any human system, the ability to know when you’re dealing with a human. To, in some sense, recognize, but recognize only in the sense of understanding when you’ve seen this human before, when they are a unique human, not recognized as in recognize across the world in all contexts who they are because that’s identity. But I’m not against identity. I think identity is also an important building block. But this isn’t about identity. This is about individuality. And this, to me, is a much more important building block than identity, both in terms of social value and in terms of the value given to socio-economic system, which is blockchain, which is blockchain networks, which is cryptocurrencies.

[00:05:16] Zoltan Vardai: Thank you sir. So, switching to one question I had about... this isn’t really from a financial perspective but more about the concerns I’m hearing about the potential centralization. Obviously, everyone wants cryptocurrency because it’s decentralized, but we’re seeing a lot of worries about these large asset managers just amassing all this Bitcoin and all this Ethereum. Asking specifically for Ethereum, is there a legitimate centralization concern down the line in two years? Five years? Ten years?

[00:05:41] Gavin Wood: Well, I think there are multiple legitimate centralization concerns in the Ethereum, you know, one of which was in part, what sort of… I don’t know, I can’t really comment specifically on the ETF front. I would say that one of the prime websites for understanding the Nakamoto coefficient of each network has shown that Ethereum is amongst the lowest. I think it might even be the lowest of the major networks in terms of Nakamoto coefficient. Its staking distribution is incredibly centralized. I believe it’s mostly based around one of the liquid staking. This is hugely problematic in my perspective because the conversations with people that want to deliver liquid staking on Polkadot, I’ve said, look, do it if you want, but be aware that if this gets beyond like 5% of the network, you are really detracting from the security of the network in Ethereum. I don’t know, it’s what you’re comfortable with, I suppose. And there are plenty of Web3 blockchains which are perhaps even more centralized than that. And I think Ethereum, you know, largely comes at it from a desire, an alignment of true decentralization. But I think in this and quite possibly the ETF situation, that decentralization isn’t possible. Yeah, I don’t know. I don’t know about these.

[00:06:55] Zoltan Vardai: You’ve actually partially touched on one of my next questions, which is the growing staked Ether supply. And particularly in Lido, which is controlling, I believe it was almost 30% of the staked Ether supply. Was this what led you down the Polkadot path, or was this a different centralization concern? I see that.

[00:07:10] Gavin Wood: I see that the Ethereum, the genesis distribution of Ethereum is very uncertain. I wonder how decentralized Ethereum is. With Bitcoin, we had a notionally fair launch, right? There was no genesis distribution. I mean, Satoshi mined however many blocks. But until that Bitcoin moves, we assume that it’s probably inactive. We could be reasonably confident that Bitcoin is about as decentralized as at least other assets. The same isn’t true with Ethereum. Relatively, comparatively few people knew about Ethereum, and a huge amount of it was sold at genesis until recently. I guess at least most of it. We don’t know who was behind those sales. If there were, for example, one huge whale that happened to buy 50% of the Ethereum Genesis, there would be nothing stopping them from doing that. And Ethereum really wouldn’t be decentralized at all. There is no reason to believe Ethereum is, under it all, actually very decentralized. This is my main concern. But with the staking situation, I think this is also a very important point, and I think it detracts from Ethereum’s otherwise fairly impressive record of attempting to build a truly resilient Web3 system.

But the answers to this, how do you prevent essentially Lido taking over and getting 34%? And suddenly it’s like, you know, very well 50% or even more? It’s sort of self-censorship, right? It’s like a self-awareness of such protocols and such actors that try to manage. And I seem to remember in the Bitcoin ecosystem, at one point, I think someone pushed beyond 50%. I think at one point, I can’t remember, was it like Bitfury or someone? I think one of the major mining operations actually went slightly beyond 50%. And there was like a big existential crisis in the Bitcoin community. What do we do, some way, if it turns out someone can actually profitably attack Bitcoin? You know, we assume that those individuals, those organizations are going to be self-interested in the protocol enough that they’re not going to go beyond that. But the fact that it can happen at all is a concern. The fact that we’re already in a situation where there is an accrued amount of stake under a specific economic actor is, in and of itself, concerning.

[00:09:23] Zoltan Vardai: You mentioned that when you talk about Polkadot liquid staking, it detracts from network security, if it would go above 5% of the supply. Was that right?

[00:09:30] Gavin Wood: It’s just a number that I picked from the air. Okay, 33%, depending on the protocol specifics. 51%. Some protocols 33%, others 20%, some even less if they’re particularly not very fragile, you know. The numbers, we don’t want to see beyond this. But the thing is, that’s the hard limit. That’s like if it’s under one person, that’s very, very worst case. But the reality is that even if it’s under two or three or four, people can talk, people can cooperate. And if cooperating results in a profit for them, well, sooner or later, they probably will cooperate and get that profit, right, and take the money off the table. So, this is why I say much less than these 33%, 50%. Eventually, not now, you know, while people are drinking the Kool-Aid and they want to stay in the network, they, you know, greater good, yada, yada, yada, sure. But this feeling doesn’t necessarily last. It’s a tragedy of the commons. Eventually, people trash the commons. That’s kind of the tragedy, yeah? And the same may very well be true here. We don’t know what time scale this will happen on. So this is why I say, well, I wouldn’t take it to the very limit here because then once it goes wrong, it goes really wrong. If we look more at the sort of 5% mark at least, then when beyond 5%, we start getting warning signs, yeah? And then it’s like, oh, 5% or first warning. 10%, another warning. 20%. And then it’s like, okay, now we’re at 30%, and it’s like really starting, you know? But we already were warned when it was getting to 5%, 10%. So this is why I mentioned the much lower percent.

[00:11:02] Zoltan Vardai: Actually, I completely understand. You kind of mentioned earlier that some of these centralization risks have led you down the Polkadot path. Was your main premise to create a truly decentralized blockchain? Was it about decentralization? What was it that led you from Ethereum, which is obviously becoming another historic project?

[00:11:18] Gavin Wood: There are a few reasons. One of them was I wanted to do something that was materially different to Ethereum, next generation, and it became clearer and clearer that Ethereum was not going to relaunch itself in any sort of substantial next-generation way. You know, that has borne out over the last nine years where we’ve seen minimal changes to the Ethereum core protocol, barely beating Bitcoin in terms of stagnancy. So, this is the first, quite possibly the most significant, thing. I’m a curious person, and this is what led me to Ethereum. I was curious about what would happen if this sort of functionality was delivered, and similarly furious about protocol. And that is what leads me on to JAM and all the other stuff. A secondary concern wasn’t so much central, not economic centralization per se. That was one of the sort of things in the back of my head. Secondary concern was really something that I touched upon in the Polkadot Fellowship Manifesto, which is essentially, how is the protocol evolved? Because if there isn’t an effective way for it to evolve, if there isn’t like a mechanism for it to evolve, an effective leadership mechanism, then it will either be arbitrary or it will be stagnant, and it looks like it’s actually mostly stagnant. Now, of course, you know, you might say, well, we think we have a benevolent dictatorship, and we actually totally trust that this benevolent dictator is totally going to be fine and good for the protocol, and we’ll do everything right. And it’s like, okay, fine, but that’s not Web3. That’s trust, right? That’s authoritarianism. And that’s not what I’m here for.

And you might say, oh, well, we’ve got like vague democracy. You know, people can vote, and we look for consensus. And, like, this is too vague. The reason that we’re building blockchain is to not be vague, right? If we want vagueness, we’ll have banks and regular law where lawyers can fight over whether a comma means this or that. That’s vagueness. That’s the horrible world of regular legal courts and lawyers and all of the rest of it, where when you sign a contract, you don’t really know what’s going to happen if the contract gets taken to court. If you’re lucky, you might get up to like 90% or 95% certainty that it will go one way under certain circumstances and another way under others. And that’s if you’re lucky, if it’s really locked down tight and you’ve paid God knows how much to a lawyer to really lock it down. Vagueness is not a basis for a good, solid protocol that wants to evolve and remain resilient and responsive to a changing world. So, that’s not what I was there for either. And these two things combined. This is what pushed me over the edge, I would say, and this is the basis of why I created the Polkadot Fellowship, why I wrote the manifesto. I wanted there to be a minimal amount of vagueness, very clear social contract, as little structure as was necessary, but enough structure to actually give us confidence that this will last beyond a benevolent dictator, that this can morph and mutate and evolve to remain resilient and to remain responsive to a changing world.

[00:14:17] Zoltan Vardai: That’s an excellent point. If you look in the next year or next 10 years, what are you most concerned about and what are you most hopeful about in terms of crypto or Web3?

[00:14:24] Gavin Wood: It’s a hard one. I think my biggest concern is that I think Web3 broadly is a very socially responsible movement. Done right, it can really help the world get over its problems. And the more it gets diluted, the more it gets assimilated into the pre-existing, highly centralized, highly authoritarian mindset and model, the less it’s able to actually help. And I suppose my biggest concern is that before it gets the chance to prove itself, it will be assimilated and, in part, discredited. And if you read the mainstream press, it’s not hard to find an article that casually discredits. You can go into academia and find professors of computer science that casually discredited without really understanding. And the more that this just happens, the harder it will be to make this work for people to make it actually deliver on its promises. I see it with frivolous NFTs. I see it with memecoins. The more we play to the frivolous elements, the harder it becomes to actually deliver Web3 to actually help people. So this is my biggest concern. My biggest hope? I guess my biggest hope is that we can really make it free for everyone. When I was back in 2013, 14, when we were building this stuff, Vitalik and I were talking about the possibility of like basically getting rid of Ether, the currency, right? The cryptocurrency. Something that I mean now appears to be unthinkable. But we had this conversation, and we were like, why does it need to be kept? And then we decided to keep it partly, well, how else are we going to raise funds? And partly because it’s an effective anti-spam mechanism for transaction volume. But it continues to represent a massive barrier to entry into that ecosystem.

I have to hold Ether to use smart contract. Now, of course, this is something that with one of those sort of bigger technical initiatives that that’s going on in the Ethereum ecosystem, something that they’re trying to work around. But in my mind, it will be hard. It will be hard to divorce Ethereum from Ether in an effective way that is sufficiently good to make it really responsive to the needs of the sorts of applications that we will need to produce and deploy on Web3 in order to bring over clientele. Six billion people, they’re using Web2 services daily. And until we do that, it’s not going to be competitive. And so, my biggest hope is that we can essentially make transactions usage-free. You know, there’ll be some caveats, inevitably some small print. And both of the projects that I’m working on at the moment, JAM and proof of personhood and individuality, one of the very important guiding lights, North Stars for these projects is make it free for everyone. Why make Web3 free to use? And JAM does it basically by making the computation that it can do transactions to be massively cheaper, to the point where it’s kind of basically zero. It’s close enough to zero that we could kind of round out. And individuality is about saying, well, look, you know, if we know that you’re a person, there’s no need to do anti-spam mechanisms because it’s not Sybil attackable. That’s the genius perspective.

[00:17:40] Zoltan Vardai: I think this last sentence really helped me understand why we’re so passionate about individuality because it’s basically a way to remove these larger economic barriers from the blockchain space. Yeah, very much appreciated.

[00:17:49] Gavin Wood: Likewise. Good questions. A pleasure to talk.

[00:17:52] Zoltan Vardai: This has been another episode of Decentralize with Cointelegraph. Thank you so much for joining us on yet another insightful conversation on covering decentralized and Web3 space. Make sure you subscribe so you never miss an episode, and we’ll see you in the next one.

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