Summary Notes


In the season eight finale of the "Acquired" podcast, hosts Ben Gilbert and David Rosenthal, along with guest Paky McCormick, dissect the complex and groundbreaking world of Ethereum, the decentralized platform that has revolutionized blockchain technology beyond the scope of just currency. Ethereum's evolution from its inception in 2014 to a platform with a $200 billion market cap has been marked by significant achievements, including the proliferation of decentralized finance (DeFi) and non-fungible tokens (NFTs), as well as challenges such as scalability issues and network congestion. Despite setbacks and slower-than-expected progress on upgrades like Ethereum 2.0, Ethereum has maintained its position as a leading force in the crypto space, with its native token, Ether, serving as a crucial component in a multitude of blockchain-based applications. The episode delves into the nuances of Ethereum's development, its potential future trajectory, and the implications of its open-source, foundation-led structure on the broader technological landscape.

Summary Notes

Introduction to Acquired Season Eight, Episode Eight

  • Ben Gilbert and David Rosenthal introduce themselves and their professional backgrounds.
  • They are in Seattle to record the season finale of Acquired.
  • A shoutout is given to young Spielberg and Mike Taylor for crafting new intro music for the podcast.
  • The hosts discuss the significance of Ethereum and its distinction from Bitcoin.
  • Ethereum is described as a global distributed computer, a single virtual machine running across millions of CPUs.
  • The importance of Ethereum as a tamper-proof and censorship-proof invention is highlighted.
  • The episode is expected to generate discussion in the Acquired Slack community.

"Welcome to season eight, episode eight of acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures." "And I'm David Rosenthal. And I am an angel investor, based in San Francisco. But today, I am here with you in Seattle, in the flesh."

The quote introduces the hosts and sets the stage for the episode's focus on Ethereum.

Ethereum: The World Computer

  • Ethereum is contrasted with Bitcoin, which is debated as a currency, store of value, and medium of exchange.
  • Ethereum is not just about currency; it is a decentralized global computer.
  • The Ethereum network uses Ether (ETH) as its token.
  • The hosts argue that Ethereum is a significant invention with implications for future technology companies.
  • Ethereum's market cap fluctuated dramatically in the previous year, reflecting its impact and growth.

"Ethereum is something completely different. You can think of it more as a gigantic distributed computer that exists all around the globe in a completely decentralized way." "It is one single virtual machine that runs across millions of CPUs all at the same time, albeit one very slow virtual machine."

The quotes explain Ethereum's fundamental concept as a distributed virtual machine, emphasizing its global and decentralized nature.

Acquired Slack Community and Sponsors

  • The hosts encourage listeners to join the Acquired Slack community.
  • They thank listener Austin Federa for curating the digital assets channel.
  • The episode is sponsored by Pilot, a company providing accounting, tax, and bookkeeping services for startups and growth companies.
  • Pilot is praised for allowing startups to focus on their core product by outsourcing financial tasks.
  • The sponsorship section includes a discount offer for Acquired listeners.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds. Pilot is the one team for all of your company's accounting, tax and bookkeeping needs."

The quote highlights the episode's sponsorship by Pilot and promotes its services to the audience.

Disclaimer and Season Recap

  • The hosts remind listeners that the show is not investment advice and is for informational and entertainment purposes only.
  • They recap the season, which started with Bitcoin and included episodes on the New York Times Company, Berkshire Hathaway, and is concluding with Ethereum.
  • The hosts express gratitude to the listeners for being part of the season's journey.

"And listeners, as always, this show is not investment advice. David and I may have investments in the companies assets, protocol tokens, utility tokens." "Ben. Utility tokens."

The quotes serve as a disclaimer regarding the nature of the show and the hosts' potential investments in discussed topics.

Vitalik Buterin and the Genesis of Ethereum

  • Vitalik Buterin, a high school kid from Toronto, becomes interested in Bitcoin and starts writing articles for Bitcoin Weekly.
  • He becomes the head writer for Bitcoin Magazine and gains recognition in the cryptocurrency community.
  • Vitalik takes a year off from the University of Waterloo to focus on cryptocurrency projects.
  • He travels to Amsterdam and Tel Aviv, engaging with projects like Colored Coins and Mastercoin.
  • Vitalik proposes the idea of a Turing-complete blockchain platform but is initially dismissed by the Mastercoin team.
  • He travels to San Francisco, where he writes the Ethereum white paper, proposing a decentralized platform with a native currency, Ether.
  • Ethereum is designed to enable smart contracts and decentralized applications, transcending Bitcoin's limited functionality.

"He has a name." "He uses his real name. There is no username. The name, like everybody else, is like, oh, man. In the episode, who is the smokes too much? There was the user smokes too much that had posted to the. But this, this new user is just simply Vitalik Buterin right there all on."

This quote underscores Vitalik Buterin's decision to use his real name in the Bitcoin forums, contrasting with the anonymity common in the cryptocurrency community, and marks the beginning of his public identity in the space.

"This is like a Kickstarter for bitcoin articles."

The quote describes the unique crowdfunding model used by Bitcoin Weekly for publishing Vitalik Buterin's articles, highlighting his early contributions to the community and setting the stage for his later work on Ethereum.

Ethereum's Smart Contracts and User Accounts

  • Ethereum smart contracts are like code contracts, with their own "money," a novel concept.
  • Contracts execute automatically based on inputs, without an intermediary.
  • This automation of contracts with financial capabilities is unprecedented.

So you've got literally the code contracts that are the same as the user accounts, meaning they have their own money. The code has its own money. This has never happened before. This is huge.

The quote emphasizes the groundbreaking nature of smart contracts having control over funds, which contrasts traditional contracts that require human intermediaries for financial transactions.

Ethereum as a World Distributed Computer

  • Ethereum is often referred to as the "world computer" due to its distributed nature.
  • Unlike centralized cloud services like AWS or Azure, Ethereum operates without a single entity's control.
  • The network's distributed architecture makes it resilient to downtime and interference.

This network actually gets instantiated, it's going to be a world distributed computer like there has never been before.

This quote conveys the idea that Ethereum's network, once fully operational, represents a global computing platform unlike any centralized service existing before.

Decentralization and Efficiency Trade-offs

  • Ethereum's decentralized architecture provides robustness but at the cost of efficiency.
  • Each node on the network holds a copy of the code, leading to high energy and time requirements.
  • The trade-off is between power and cost, making it suitable for certain applications but not all.

Okay, really good for some stuff and at great cost.

This quote summarizes the inherent trade-off in Ethereum's design, where the benefits of decentralization come with increased costs in terms of energy and network resources.

Ethereum's Computational Power

  • In mid-2021, Ethereum's computational power was comparable to a Raspberry Pi on a home broadband connection.
  • Despite limited power, Ethereum's network is remarkably stable and reliable.

The relative power of the computer that is Ethereum, the world computer, is roughly equivalent to a raspberry PI on a home broadband connection.

The quote highlights the modest computational power of Ethereum compared to its ambitious role as a global computing platform, yet it underscores the network's stability.

The Genesis of Ethereum

  • Vitalik Buterin drafted the Ethereum white paper in 2013, aiming to create a base layer for decentralized applications.
  • Initial feedback on the white paper was overwhelmingly positive, with many expressing interest in contributing to the project.
  • Ethereum's vision was to allow developers to build unrestricted applications on a global network.

Vitalik's vision was much too big to be constrained.

This quote captures the ambitious scope of Vitalik's vision for Ethereum, which was to create an unrestricted, decentralized platform for developers worldwide.

The Founding Team of Ethereum

  • A core group formed around Vitalik to develop Ethereum, including Mihai Alisie, Amir Chetrit, Anthony Di Iorio, and Charles Hoskinson.
  • The team faced internal challenges regarding the project's direction and structure.
  • The group recognized the need for technical developers, leading to the inclusion of Gavin Wood and Jeff Wilcke.

A core group of five people starts to form to pull this ambitious thing together and try to make this project happen.

The quote reflects the early stages of Ethereum's development, where a small group of enthusiasts came together to work on the project, despite differing visions and technical challenges.

The Miami Bitcoin Conference and Ethereum's Announcement

  • Ethereum was publicly announced at the Miami Bitcoin Conference in 2014.
  • The announcement generated significant excitement and interest in funding the project.
  • The team decided to regroup in Switzerland to plan the project's future and fundraising strategy.

The room is packed. Like, everybody in the crypto community is there. And he announces Ethereum.

This quote describes the momentous occasion when Ethereum was introduced to the public, capturing the packed room's enthusiasm and the crypto community's interest.

  • The team debated whether Ethereum should be structured as a for-profit company or a non-profit foundation.
  • The decision to form a non-profit foundation allowed for an initial crowd sale of Ether, Ethereum's native currency.
  • Legal opinions helped classify Ether as a commodity, enabling the crowd sale without securities registration.

Would they be Google, a for-profit company with revenues and cash flow and profit? Or would they be like the Mozilla foundation?

This quote outlines the critical decision point regarding Ethereum's legal structure, which would significantly impact its ability to raise funds and operate within legal frameworks.

Ethereum's Initial Development and Launch

  • Ethereum's launch was planned in phases, with the final phase transitioning to a proof of stake blockchain for scalability.
  • The initial phase, "Frontier," was released in 2015, marking Ethereum's public availability.
  • Ethereum's launch catalyzed the ICO boom, with numerous projects raising funds through token sales on the platform.

The team finally releases the first of the planned five phases of Ethereum. The frontier release goes live, and Ethereum is open to the public.

This quote marks the official launch of Ethereum, signifying the network's readiness for public use and the beginning of a new era for decentralized applications and fundraising.

Hard Fork Decision and Philosophical Consequences

  • The decision to implement a hard fork in response to a bug had significant philosophical implications, akin to a government bailout.
  • It raised concerns about the centralization of power within the Ethereum Foundation and its ability to rewrite transaction history.
  • The choice to hard fork demonstrated that Ethereum's immutability could be compromised if a few influential individuals decided to undo history.

"This is essentially a bailout that we're talking about here. It's just like 2008. We screwed up, the consequences of our actions ended up. It's a bad places. Rather than taking responsibility and moving on, we're going to have some deus ex machina. A government, like a higher authority, is going to come in and reset things here."

The quote emphasizes the comparison between the hard fork decision and financial bailouts, suggesting a departure from the principle of immutability and the assumption of a higher authority's intervention to reset the system.

The Influence of the Ethereum Foundation

  • The Ethereum Foundation's influence was highlighted by their ability to guide the community towards a hard fork.
  • It questioned the decentralized nature of Ethereum, given the Foundation's power to persuade the majority to adopt changes.
  • The situation underscored the reliance on the judgment of a few rather than the immutability of smart contracts.

"And what they sort of proved is like, jeez, these Ethereum foundation people have a lot of power over this ecosystem. Like if they come out and Vitalik comes out and says, okay, everyone, we want you to hard fork, then as long as 51% of people hard fork. And really it's 51% of the sort of mining capacity."

This quote illustrates the Ethereum Foundation's substantial influence on the ecosystem, particularly when rallying support for a hard fork, which can redefine the 'truth' within the network.

Ethereum Classic and Immutability

  • The emergence of Ethereum Classic highlighted the divide within the community regarding immutability.
  • Ethereum Classic became a symbol for those prioritizing immutability, while the main Ethereum blockchain focused on pragmatism and evolution.
  • The situation illustrated the complexities of managing a decentralized community and the trade-offs between immutability and practical governance.

"It is still going to this day. It is called Ethereum classic. You can buy Ethereum classic tokens on Coinbase. It has a $4 billion market cap."

The quote points out that despite the hard fork, the original Ethereum blockchain persisted as Ethereum Classic, maintaining its commitment to immutability and attracting a market valuation reflective of its continued relevance.

The Evolution of Ethereum and Centralization Concerns

  • Ethereum's evolution raised questions about the balance between decentralization and the need for pragmatic leadership.
  • The community's shift from purist ideals to accepting some level of centralized decision-making reflected broader societal influences.
  • The role of influential figures like Vitalik Buterin in guiding Ethereum's future was both acknowledged and critiqued.

"There is a little bit of a benevolent dictatorship going on there between Vitalik, the foundation, and the largest mining pools, where ultimately we are putting our faith and trust in something."

This quote captures the tension between the decentralized ethos of Ethereum and the reality of centralized influence exerted by key figures and entities within the ecosystem.

Scalability Challenges and Network Congestion

  • Ethereum's scalability limitations, likened to a "world's slowest computer," became apparent with the increasing number of transactions.
  • Network congestion and high gas fees highlighted the need for scalability solutions to accommodate the growing demand for Ethereum's functionality.
  • The comparison of Ethereum's transaction capacity to traditional systems like Visa underscored the challenge of scaling a decentralized network.

"Right now, the Ethereum network processes somewhere on the order of, call it like 15 to 45 transactions per second... For comparison purposes, the Visa network can, at peak load, process about 50,000 transactions per second."

The quote contrasts Ethereum's limited transaction throughput with traditional financial networks, emphasizing the urgency for scalability improvements to meet user demands.

Ethereum 2.0 and Sharding

  • Ethereum 2.0 and sharding are anticipated solutions to Ethereum's scalability issues, promising significant improvements in transaction capacity.
  • The transition to Ethereum 2.0 involves a shift from proof of work to proof of stake, fundamentally altering the network's consensus mechanism.
  • Despite optimism, the lengthy timeline and complexity of Ethereum 2.0's implementation pose risks to Ethereum's competitive position.

"Once the final serenity release of Ethereum, which together with a few other things is being called Ethereum 2.0, once that is live, in theory, the Ethereum network will be able to process up to 100,000 transactions a second."

This quote highlights the potential of Ethereum 2.0 to drastically increase transaction throughput, which could address current scalability concerns and reshape the network's capabilities.

Composability and Sharding

  • Ethereum's composability, also known as "money Legos" or "media Legos," allows different smart contracts to work together seamlessly.
  • Composability is a key reason why developers prefer building on Ethereum and in the Web3 space.
  • Sharding, a proposed Ethereum upgrade, could disrupt composability by separating contracts onto different chains, leading to potential speed losses and breaking composability for certain use cases.
  • Competitors could leverage the disadvantages of sharding to offer faster, single-shard solutions.

"And so there's a bunch of those daisy chains that happen that if they're not on the same chain and they're sharding, then there's speed lost in that, kind of moving down from the shards to the main chain."

The quote highlights the concern that sharding could slow down the interactions between smart contracts, which are currently seamless on a single-chain system like Ethereum.

Ethereum's Lead and Innovation

  • Ethereum's creation was a significant innovation, introducing the concept of a Turing-complete, globally distributed computer.
  • It enabled not only applications but also platforms for applications to be built upon it.
  • Ethereum needs to innovate once again to transition to a scalable future without losing its current advantages.

"They threaded a needle the first time by creating Ethereum at all."

This quote emphasizes the original innovation of Ethereum and suggests that a similar leap in innovation is required for its future development.

Ethereum's Scalability and Developer Frustration

  • Scalability has been a known issue for Ethereum, with slow progress causing frustration among some in the community, like Fred Wilson.
  • The concern is that high gas fees and slow development could drive developers to other platforms.
  • Projects like Audius demonstrate a hybrid approach, using both Ethereum and faster blockchains like Solana for different purposes.

"We've known that scalability is a problem for a long time. We still don't know when it's going to get fixed."

The quote reflects the ongoing concern about Ethereum's scalability issues and the uncertainty of when they will be resolved.

Ethereum's Network Effects and Token Value

  • Ethereum's network effects are critical, with security and platform utility increasing as more people use it and the price of ETH rises.
  • Projects built on Ethereum incentivize users to bring in more users, which increases the value of the platform and its tokens.
  • A potential bear case for ETH is that if the network becomes less congested and gas fees drop significantly, the value accruing to ETH holders could diminish.

"That the transaction, even if everybody in the world used the credit cards but interchange dropped to 0.1%, Visa and Mastercard, become a lot less valuable."

The quote draws a parallel between traditional financial networks and Ethereum, suggesting that lower transaction fees could reduce the value of the network, much like lower interchange fees would for credit card companies.

Ethereum's Network Power

  • Ethereum's network power is derived from various factors, including network effects, switching costs, and potential scale economies.
  • Ethereum's role as a primary trading pair in the crypto economy creates significant switching costs.
  • The network faces challenges such as negative scale economies, where increased usage can lead to higher gas fees and degraded user experience.

"Ethereum as a network got less utility in several ways as it got bigger."

This quote acknowledges the challenges Ethereum faces as its network grows, contrasting with other businesses that benefit from scale economies.

Ethereum's Organizational Structure and Open Source Nature

  • Ethereum's open source community structure has both advantages and disadvantages in terms of speed and decision-making.
  • The Ethereum Foundation's stewardship has been questioned, and the slow pace of development has been criticized.
  • Ethereum's structure allows for adaptability and community-driven evolution, which is unique compared to traditional corporations.

"It's a big open source project, but I don't think that gives it power."

The quote suggests that while Ethereum's open source nature is integral to its ethos, it may not directly contribute to its power or success.

Ethereum's Brand Power and Legitimacy

  • Ethereum has built significant brand power and legitimacy over time, which is critical for its value.
  • The existence of Ethereum Classic and other forks highlights the importance of Ethereum's brand in maintaining value.
  • Legitimacy is gained through various means, including historical performance and community trust.

"Because Ethereum's been around a long time and performed well in the past and all of these things, it keeps accruing legitimacy."

This quote explains how Ethereum's history and performance contribute to its ongoing legitimacy and brand power in the crypto space.

Potential Bear Cases for Crypto and Ethereum

  • There are concerns that Web3 and Ethereum may not find real-world applications that justify their complexity.
  • The entire crypto market, including Ethereum, is heavily influenced by the price of Bitcoin.
  • Government crackdowns on cryptocurrencies pose a significant risk to Ethereum's adoption and utility.

"If it can get to a point where there's a ton of utility and it enables cross border payments, and people who are in hyperinflationary markets need cryptocurrency... then that's awesome."

The quote discusses the potential for Ethereum to overcome regulatory challenges by providing undeniable utility, especially in unstable economic environments.

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