hello this is Tyler before we start I just wanted to tell you about a new Venture we're initiating at mercus it's called emergent Ventures and the point of the Venture is to seek out ideas that have the potential to be transformational including strange unusual high-risk High return ideas and to fund these ideas and to fund these people if you'd like to hear more about emergent Ventures well we have a whole
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hello I'm here today with vitalic buin who is founder and chief scientist at ethereum I'd like to start with what I call the vitalic Budin production function that is how you get things done so I went back and I reread all of the papers on your homepage and I found it quite striking that there are two very important economics results one based on menu costs associated with the name of Greg monu and another's a paper on the
indeterminacy of monetary equilibrium associated with Fisher black these are famous papers on your own you appeared to ReDiscover these results without knowing about the papers at all so how would you describe how you teach yourself economics I I guess it involves a combination of things um some of it is just re reading what various economists on the internet say some of it is reading paper
sometimes if I want to dig into some topic more deeply I end up reading books like I read one on Urban Transportation economics a while back I also go to conferences um so I was just at the economics and computation conference with Glenn wild and other people in Ithaca last week which uh I thought was very interesting and it's uh I think it's always a kind of indispensable um opportunity to
physically go to places and actually talk to people because that way you learn things about like both what people are thinking about and how people are thinking and the space that you can't easily find from the internet and if you think about economics what you've taught yourself what do you think of as the central ideasa is relevant for cryptoeconomics which is a term I think you coined yeah cryptoeconomics like
first of all is economics right so it's not like we're inventing some completely different parallel Society with a different parallel economy and different rules but it is economics specialized to to a particular set of circumstances and then you have to ask yourself well what describes those circumstances and I think there's a few major parts to that answer so first of all whatever mechanisms you have in cryptoeconomics
land have to be fully specified exactly and not exactly to the standards of a court judge but exactly to the standards of a computer programmer and so what that means is that there's a lot of things that you can't do so for example you can't say in crypto economics it's illegal to bribe people because there's really no simple way to define what a bribe is and if someone really wants to
bribe someone else or he can just go and do that outside of the protocol and the protocol would just have no way to tell right so whatever your rules are for rewarding penalizing inside of the mechanism they have to be basically specified as a piece of you know like solidity code Viper code whatever programming language you're using and that's it and that's a much tighter constraint than uh policy makers writing
Wass have um another one is of course that all of the actors are Anonymous and what that means in practice is basically that you cannot drag people's utility down below zero right so if I have 70 ether and I put that 70 ether into a mechanism the worst thing you can do to me is you can take away that 70 ether you cannot throw me in jail you cannot socially ostracize me so I can't ear any
money again because I can always just switch identities but to the extent that I'm willing to lock that either up and make it vulnerable to a mechanism then you have the ability to motivate me to that extent so cryptoeconomics is basically taking economics with those particular constraints and then adding together insights from some kind of fields that are fairly close by to the
cryptocurrency space so particularly cryptography and information Theory and math and distributed systems so including all of the research around consensus algorithms hash functions signatures Zer knowledge proofs and what we know about all of those Primitives and like basically trying to figure out given these constraints and giving these building blocks what kind of systems uh and what kind of mechanisms can we
design to achieve the properties that we want and under what kinds of assumptions do those properties hold and what's the contribution or understanding you wish economics could give you that it hasn't given you yet what problem do you want it to solve for you so once you start getting into the needs and you try to move Beyond you know very simple things like you like proof of work and the
simplest versions of proof of stake and the uh tricks that we've known about since 2009 or 2013 then you get into um this uh situation where you realize that like basically the kinds of problems that you run into when you try to incentivize Behavior so particularly like when you run into things like what I call speaker listener fault equivalence which is basically this idea that if the protocol requires Alice to
send a message to Bob and the protocol detects that Bob never showed a message from Alice then the protocol knows that you know like either it's because Alice forgot to speak or it's because Bob pretended not to listen and then under those kinds of conditions trying to figure out well what is the right way to motivate Alice and motivate Bob while preserving all sorts of different
properties then these are questions that are very close to questions that you game theorists mechanism designers people in the economics Community have already had a lot of things to say about and there definitely are results from the um existing uh fields of economics and game theory that have uh helped significantly in that regard another whole aspect to this is also the kind of more broader and social question of how
will blockchain based systems actually end up affecting society and like basically what is a blockchain's unique competitive Advantage what are things that you can do with blockchains that you can do only with more difficulty without them and trying to like basically go from there and zero in and and try to figure out exactly what industries and what kind of applications in those Industries should be going
after do the things that were the things at the application layer that we're trying to BU able to even make sense should we modify them in some way to have them make more sense and and I mean I do think that people from the economics Community have a lot to say about that right so like I even like Alex tabarok for example had that very nice post on marginal Evolution a we a
couple of weeks back where he uh talked about blockchains in terms of kind of being an alternative to platform monopolies and I thought that was a very good insight and I thought that basically the general idea that a blockchain is one of the few tools that allows you to basically cred credibly commit not turning into a monopolistic jerk is actually really interesting insight and one that I've kind of
arrived at myself but it definitely helps to have it be crystallized in that way if you had to explain blockchain to a very smart person from 40 years ago who knew computers but had no idea of crypto what would be the best short explanation you could give them basically for what you do so one of the analogy is I keep going back to is this idea of a quote World computer so the idea basically is that it a blockchain
as a whole functions like a computer it has a hard drive and on that hard drive it stores what all the accounts are it stores what the code of the of all the smart contracts is what the memory of all these smart contracts is it accepts incoming instructions and these incoming instructions are signs transactions sent by a bunch of different users and processes them according to a set of
rules and and on a blockchain you can ultimately build anything that you can build on top of a computer but so from a computer science theoretic point of view in terms of what it provides you can think about it as being a computer but what it provides on top of that is these extra trust guarantees right so the guarantee that the computer will run in the way that you expect it to run and that a few people can't make that
guarantee fail by going out of business getting hacked dying having their company go bankrupt um deciding to be evil one day um deciding they have some monopolistic interest to start acting differently one day and all those different issues a reader wrote to me this question quote a crypto token is in some ways a shelling Point achieved through Charisma is that secretly what he's best
at yeah so I did write that blog post um a couple of months back where and I think this might be one of those things that you referred to where I kep talk about this kind of signaling Theory equal real of cryptocurrencies where I basically try to answer the question well if there isn't just going to be one cryptocurrency then what prevents the entire cryptocurrency space from hyper inflating as people can just cost usly
issue more and more and the answer that I came up with is basically that issuing a cryptocurrency by itself is Costless but issuing a cryptocurrency that people care about is not Costless and so the equilibrium is basically that there exists this kind of Club of cryptocurrencies that people recognize as having and it is possible to join the club but joining the club basically requires that
you undertake some kind of costly signaling expenditure so basically in some ways burn Capital burn resources or consume something unique which is just difficult enough that it prevents people from just doing it willy-nilly to the point Mor all of cryptocurrency hyper inflates don't people trust ether and ethereum in part because they trust you and in a sense there's this Russian tradition of kind of holy men who come
along dovi zosha Prince mishkin like a non-al rutin and the person is innocent and has some very wise message and people flock to that person are you in a sense the Contemporary version of those figures no I know people have different theories about the kind of influence that I myself have um I think uh part of it is that at least I feel like the innovation in the crypto space isn't just techn iCal Innovation or political
Innovation it's also to a large degree cultural Innovation and even I with my own behavior right I uh end up you know talking to people at different conferences just reply to random people's Reddit messages try to make myself Maxim accessible in a bunch of ways try to you know bring different people and different communities together perform a kind of social coordination function which is probably
from an economist point of view similar to some aspects of management but without the the aspects of management that kind of evoke images of centralized control and all those different things and that's not just myself know that's the ethereum community it's other cryptocurrency communities and I do feel like there definitely is a real sense in which the crypto Community is also at
the epicenter of all of these different cultural ideas of like how projects should organize what it means to be a leader what it means to be a developer what it means to be part of a project what it means to be part of team and there is um kind of there's social Dimensions to that there's ideological Dimensions to that there's dimensions of like how different ideas get spread and become more popular and I and I
definitely do agree that that aspect of things is one that's very important to Pro probably not talked about enough if we think of Thomas Shell's notion of a focal point something that people coordinate upon and come to accept as somehow centrally important doesn't that means centralization always reemerges you look at something like Twitter we're both on Twitter MH I don't think Twitter
is dominant in its sphere because it's AI is so good it's just people know the name and people are used to going to Twitter and will the crypto space end up as centralized as Twitter Google and Facebook so I wrote this uh blog post a couple years ago where I talk about different kinds of decentralization one I talk about is um architectural decentralization which is basically the difference between a system being based
on one computer and a system being based on lots of computers and being F tolerant and lots of things architecturally decentralized already right like large parts of Amazon AWS lots of military hardware traditional airplanes so like lots of things have aspects of architectural decentralization another one is political decentralization which is the thing and blockchains are trying to kind
of achieve the architectural side of decentralization of like it's not run on one piece of hardware and political decentralization it's not run by one single person or kind of small kalal of people at the same time the Third Kind of decentralization I talk about though is like logical centralization versus decentralization one example I gave in my post is kind of the English language right like the English language is
architecturally decentralized because there's no one single dictionary it's politically decentralized there's no one who really has the ability to kind of practically regulate new words into and out of existence but it is logically centralized in the sense of there is one thing which is the English language and if you start deviating from that one thing then you're going to have a harder
time and what the conclusion of my post is basically or at least part of it is that I do think that blockchains are logically centralized and like basically because there is one blockchain there is it is a shared Ledger it is a canonical history you either part of part of it or you're not and I argue that this logical centralization is actually good if you're looking to hire someone either
for ethereum or to collaborate with what quality or qualities do you look for that may be other people underage because you've also built a successful company right you're not just Chief scientist yeah well and company is not even necessarily the right emphasis once again right it goes back to my point about cultural Innovation ultimately there are different uh kind of circles in the ethereum community some
overlapping some notd and there's different ideas of what it means to be ethereum so for example you could be a full-time employee of the organization based in Switzerland called the ethereum found or it's out it's Outpost in Singapore called ethereum Asia Pacific limited you could be someone who has received a grant from the Ean Foundation you could also be basically a groupy someone that
has intellectual ideas like likes hanging out with us and just happens to fly around everywhere to the same cities that we're in and you could be someone working on some ethereum project and there's definitely people who work outside of the ethereum foundation as a formal organization that are that have made much bigger contributions than even some people inside of the foundation I think that's part of
where where a lot of the um kind of successful innovation has come from and one of the things that this gives you is it basically means that there are many different ways to be an etherion right like you can either follow along and have the same kind of lifestyle that I do or you can work for some traditional company and have some ethereum Foundation grants be one of your projects you could work on some ethereum
application and be adjacent you could just be a lone wolf working at home you could go pick any linear combination of these that you want and so know there's tradeoffs like basically you can be part of ethereum while being part of a structured team you can be part of it being a loone wolf you can be part of it as part of some traditional large corporation you can be part of a startup and I do feel like this is part of what
makes cryptocurrencies interesting right in that they are are not just a decentralized censorship resistant whatever system as a product but they are also this cultural Evolution that itself incorporates many kind many aspects of decentralization in terms of how they're produced and in terms of a way of living and collaborating and Building Things now while building ethereum you've also
taught yourself French German and Chinese without having lived in those countries on YouTube I've even seen you answering questions in Chinese about the block chain to a Chinese audience so how did you teach yourself such good Chinese first of all like as I said on Reddit I definitely did not learn Chinese and especially not canzanese in three months on a mobile app like that's stuff that like
people come up with about me and like I don't know I don't like it because it makes me look more like Kim song than it does make me look like a real person not say Kim is not a real person but like Kim the demigod definitely isn't the um look what actually happened was that basically around 2013 I just decided hey cool the Bitcoin community in China looks like it's really big and really interesting and there's this big world
that I haven't really been connected to and maybe I should try so I started going through uh pims over podcasts initially and once I went through those then I went through some other Lauren Chinese podcasts in parallel to that I also did started going through flashcard apps that taught me the uh most popular maybe like 500,000 characters and words and then once you get to an intermediate
level you're basically high enough that you can participate in WeChat conversations go to China and participate in conversations in person I mean I was never a long-term resident of China but realistically I did spend more than half a year there until in total in my life and once you get to that intermediate level like basically as long as you put yourself in environments where you just continue keeping it up
eventually it just continues getting better and better and eventually you get to the points where you can improve it further by watching movies on airplanes my colleague Robin Hansen has promoted the idea of prediction markets or betting on ideas why are there right now so few prediction markets you can bet on the outcome of an election there's plenty of sports betting but they seem
quite thin when it comes to sort of actual economic events so I know that on the centralized kind of traditional prediction Market side there's a lot of regulatory issues that make it more difficult to set one up also even on top of that like I think part of what makes cryptocurrency so attractive is that traditional Financial systems have a lot of kind of inefficiencies and annoyingness that move beyond that go
beyond the strictly regulatory right even something like oh I have money how do I move it into some particular application like very often it involves in like Bank wires it involves all of these various systems which each individual person may or may not have you have to figure it out and there's a lot of friction involved and I kind of see cryptocurrency see in part as this Grand experiment of well what happens if
you create a financial system that really is fully frictionless where moving like Bitcoin or ether from one from your wallet into an application into a smart contract or whatever really is as simple as logging into a website or clicking an email and I do think that like even already the cryptocurrency ecosystem has managed to do like first of all it's managed to get people to accept micro payments for and
specifically paying for transaction fees when a lot of people thought that that's impossible and I do have hopes that kind of the higher levels of I guess liquidity and efficiency in the cryptocurrency space could make cryptocurrency prediction markets succeed more um so that's one aspect um another aspect is that like even taking in uh if the cryptocurrency base Solutions you know actually manage to be
censorship resistant and if they manage to be more convenient then there is the possibility that there're just that this kind of gambling or betting or whatever just is a kind of betting that people just aren't as interested in and like basically the amateurs don't find it interesting enough and the uh profession there's not enough people playing for it to be worth the the professionals to
really participate and that is possible though I guess um I don't really think it's fair to say that prediction markets as a category are can be called really called a fair a failed experiment yet given that there have only been a few years of trying of trying to make them work in only a couple only a couple of different approaches but you know if the augur and gnosis and all of these other
ethereum and blockchain based prediction markets end up launching and it continues to be the case that lots of people don't end up using them then you know it's probably more reasonable to consider that idea as kind of at least a failure in it's in its uh dream of growing beyond the niche but I don't think we're quite there yet as for frictionless trading let's take What's called the Oracle problem so as you well
know you can have Smart contracts on ethereum but those are closest to frictionless when everything is within the system but if you have an external event a property title and you need someone in the physical real world to rule how an actual piece of property is assigned to someone and how that information is then translated into cyberspace does the Oracle problem mean that the frictionless tra
of say ethereum is never actually that scalable or is there some way around it that we don't yet see it depends what specific thing you're trying to do frictionlessly so for example moving ether from one account to another is absolutely frictionless now converting ether into fiat currency is absolutely not frictionless and it is very possible that it's not going to significantly get
more frictionless in the uh near medium-term future basically because of all of the banking issues that where cryptocurrency exchanges have a hard time getting and maintaining bank accounts if you're talking about participating in some kind of pure Financial derivative system then I think it will be frictionless and but determining how or why someone should be paid someone has to rule that right well
okay so here's one example right so there's a system called makerd which is basically a decentralized currency that has a more active monetary policy that attempts to keep its price as close as possible to $1 right and this clearly requires a price feed and and the maker definitely includes the decentralized price feed mechanism and it definitely is the case that there is some overhead in maintaining that um that Oracle
inside of the makerd system but at the same time just using makerd is completely friction right like if I have ether I can convert it into die very quickly I can um open up collateralized dead positions I can do all the different things inside of the maker system all from just inside of one wallet right so like basically even especially in those cases where the data is data which is fairly publicly
accessible and fairly easy to get at and fairly easy to verify at least as a person I don't think that those issues are going to be that large now once you get into issues like oh me and and you are going to enter into a smart contract where it's say it's like fire fire Insurance where if your house burns down then I have to pay you some amount to cover the cost and if nothing happens you pay me
$500 then that suddenly becomes a lot harder because then the cost of getting the information actually is um very high and it's very specific to one transaction and don't and I don't really expect smart contracts by themselves to solve the problem now what could happen of course is you could try to come up with mechanisms that basically build in who the arbitrators are right so you
could imagine some system where say you have a village and people in the village all put some amount of money into smart cont contract and if people vote and agree that one particular person is in need of cash then they vote they vote and he gets the cash so that sort of thing is uh potentially completely doable and I do kind of hope to see and I know we are starting to see people trying to design applications like that
but it's definitely not the same thing as you know like some magic Oracle that absolutely knows everything as a theorum and perhaps other groups move from proof of work to proof of stake or some kind of intermediate weighted average Sol ution to what extent will this require more institutional trust in ethereum or the other intermediaries and will that be centralizing so I would actually
expect that on net it would require less institutional trust and like part of this is basically just because a lot of people don't realize the sheer level of centralization in proof of work already right like in Bitcoin basically there's one person Jihan Vu who basically controls the largest two mining pools in Bitcoin that add up to 42% % of the network and 42% isn't enough to do a 51% attack but it is enough to do selfish
mining which is enough to like basically reduce other people's profits to the point where they drop out and you can do a 51% attack and granted like these are pools but a very large portion of that 42% I believe actually is his own Hardware right so basically I think because we're kind of used to it people do underestimate the kind of oligopoly and the rich get richer and the trust
necessary inside of proof of work systems already so for example like we like Bitcoin users already basically trust Jihan Wu and wangun to not team up and start doing 51% attacks pretty much every day and you know they seem to be nice enough or at least uh rationally self-interested enough not to do that but that's definitely still institutional trust what's the biggest Tech or engineering breakthrough you
feel you need to realize the full vision that you started with I think scalability is a huge one ethereum blockchain's capacity right now is about 15 transactions a second and if you even consider something like putting all of the Uber rides on the blockchain well that's 12 transactions per second already and if you talk about moving PayPal over that gets into the hundreds and then anything more complex starts
moving into the many thousands so I do feel like just raw ability to process more transactions per second is important and that could happen through like sharding and other base layer scale ility upgrades to the system which you we are working on it could happen through layer 2 Technologies like St channels and plasma which we are also working on and but as basically if any of these approaches end up succeeding
then and I do think that blockchains will end up being substantially cheaper and substantially more ready for actual mainstream use another big one is user experience and both user experience in terms of using the blockchain not being as clunky as it is today but also user experience of security so basically how easy is it to set up a wallet that does not allow all of your money to get
stolen overnight or lost overnight if your key gets lost or stolen and those are challenges that I do think we need a lot more innovation in and I think we will see Innovation and over the next few years what change in the legal or regulatory environment would help the most to realize this Vision I am actually don't really think um that there are many legal or regul kind of changes that can help at least on the
technological development side basically because like ultimately you know like the US already H already has all of these like cod is Free Speech precedents and like most other countries even those without like significant Free Speech protection still are still willing to kind of follow follow along in principle so I think for development in Tech the environment is very close to us friendly
as it can be then the next question is of course the question question of like what happens when the tech is built and you start talking about actual wider deployment and adoption in that case it depends on what kind of adoption of what application you're looking for like I feel like a lot of the drive toward regulatory friendliness so far has been on the cryptocurrency exchange side but
like cryptocurrency is really only one of the things that you can do right and uh trying to make it easier for like very large piles of money to move into to the cryptocurrency space is I don't necessarily think the thing that that the cryptocurrency space needs most at this point and like honestly especially when you hear things about like CEOs of exchanges trying to move into you like
Africa where the levels of financial literacy are very low and there's all sorts of pansy schemes already and then institutional like institutional investors and Pension funds and so forth trying to get into cryptocurrency like there there's definitely reasons to believe that stuff can be actively counterproductive so I think for other kinds of applications it's a a very application specific question right so
like for example if you look at icos and then I've come up with you know like daos and then you can also talk about like airor drops and like decentralized product launch launches and all these ideas which are basically Innovations in uh fundraising then like that basically requires a regulatory environment which is um open to experimentation that's something thing that I do think that places in Asia tend
to be fairly ahead of the curv on in terms of like sandboxes in Singapore I know Hong Kong and Taiwan are looking into sandboxes as well whereas um I don't it doesn't seem like the US has uh quite quite that kind of approach um at least at this point in time right it's it's possible the political environment is just kind of not organized enough to maintain it and there's bigger priorities to worry about at this point
What's the best Theory out there for valuing a given crypto asset it doesn't have to be ether but there's a new crypto asset that comes along let's say it's cleared some minimum threshold of Interest what theoretical apparatus from economics or elsewhere should we apply so I've thought about this a lot and I'm still not sure what the kind of best answer is because ultimately it depends
a lot on kind of the way the cryptocurrency goes so one way to measure this is to treat a cryptocurrency as basically being a kind of corporation that collects Revenue through transaction fees and particularly in the case where transaction the transaction fees either are burned or get redistributed to the the cryptocurrency's own proof of stake validators in that case you can basically take the simple model and say
oh a cryptocurrency's valuation is the net present value of the transaction fees that it's getting and now this by itself surprisingly does give like fairly decent valuation so for example ethereum's transaction fees tend to be about $500,000 a day recently which is about $180 million a year so if you try to kind of value The Ether market cap as some kind of Corporation then the kind
of quote PE ratio is only somewhere in the low 200s which is you know high for a company but not like but not off the charts absurdly High the um then you can also look at trying to value cryptocurrencies in their capacity as as a medium as of exchange and then you have you know MV equals PT and all these other models and then there's also this model of store value where basically people hold it because they expect more
people to hold it in the future and because people keep getting richer and the population keeps growing as long as prices grow slow enough it can be stable in the long term I expect um and there are a lot of people that that are really pushing the store value angle I guess my practical answer is I don't really know and if you're looking to design a cryptocurrency that's sustainable then I
definitely think it's importance to have a story for why it would maintain its value under a variety of different economic models what do you think of the portfolio competition with gold Theory so if you measure the total stock of gold out there and then you conclude don't ask me how well people will want to shift 5% of that into crypto assets and you figure out the value of that and you then get an aggregate figure not for
any particular asset but for crypto as a whole does that make sense to you or do you think fallacy no that's definitely something that I've considered as well and that's uh part of what I mean when I talk about the store value model right like basically I think uh even if cryptocurrencies by themselves do nothing it's you can like if there's an established equilibrium where they
roughly grow at you know the same or similar rate as other things then you could have a situ as long as they grow in a way that's at least somewhat uncorrelated from other things that it makes sense for in pure portfolio Theory to have some of your money in in them I definitely fully agree with that position like as you said I reinvented it myself in most of these sessions we have a segment in the middle called
overrated versus is underrated are you game for doing this you're fre to pass advertising overrated or underrated proba I'm going to guess my answer to a lot of these is going to be correctly roughly correctly rated but in a different way from how other people expect so for example I think uh like advertising in terms of traditional advertising definitely overrated but advertising in terms of the Rader
category of trying to influence how people in the public think in order to benefit your product I think we're going to see lots of innovation you like both good and bad over the next couple of decades travel as a method of learning uh definitely I would say still underrated and what's the thing one gets from travel that a lot of other people don't grasp first of all it depends what kind of travel so like I think uh like
going to Beijing and seeing the Summer Palace and then going to Tokyo and seeing some some Shrine and whatever is like basically useless because you don't really get more than you would get by going to Wikipedia but I think the kind of traveling that is valuable is the kind where like it's not even set up as explicit sort of travel for the sake of travel you're traveling there in order
to do something and in the course of doing that you end up interacting with people you end up seeing what the different aspects of the culture look like you end up seeing like how people think how people interact with each other is there something that they're doing that's better than what you're used to as are the things you're doing that you can really say are worse than what you're used to I would say I
personally definitely learned a lot of that from say going to China that I would not have learned like and Asia in general that I would not have learned by just reading about those places from you know the internet and like the various um mainstream ideological blab houses that talk about those places all day long and what's your favorite part of China to visit as far as cities go I like Shanghai as for and I know like
let's see um I have mixed feelings about shinen like there's definitely innovativeness but then there's definitely also all of this kind of like let's make 500 shopping malls culture to me it's boring shinhan I prefer almost anywhere else in China right right I would say um I me I'm starting to like be Jang is kind of growing more on me over time I guess I mean it's OB like it's obviously on
the periphery of China but Hong Kong is interesting all in its right as well how about Tu Switzerland forget about crypto just as a city underrated or overrated Depends for for what purpose um so for example like I used to spend a lot of time in zoo but now I spend much less time and part of that is that I do think it's overrated as a place to live and like basically I think the problem is
that you know there's and this goes into this bro like there is this broader kind of subculture of people trying to make like basically libertarian tax havens of like different different levels of extremeness and I think one of the problems of uh libertarian tax Havens and libertarian Havens in general both online and offline is that they attract both people who like freedom and rich people who are not particularly
interesting and in zoo like basically you just have a very small number of people it's relatively It's relatively difficult to get to like a lot of people in the finance industry and it's just doesn't have the sort of things that like attract me about about cities that would make me want to live there and on top of that you have to pay five and a half dollars for a for to to buy anything in Starbucks and even places
like uh like and there's people trying to make a kind of crypto Valley in Puerto Rico and I'm starting to worry it's running into that kind of effect as well um in terms of places to kind of just set up a crypto project I think you know could be totally totally legit the Disney Star Wars movies the most recent one episode 8 is underrated I would say the thing that I liked about episode
eight is that it seems to have kind of like a certain kind of realism that was lacking in some of the previous ones and what I mean by that is that it's not just like glorious Rebels versus the evil empire first order whatever like first of all for most of the movie The Rebels are losing and that's how conflicts work in real life and second of all it shows the enemy as something that's kind of a bit richer and even
having its own internal conflicts and not KN some evil Borg where every member of the evil Borg agrees that they're the evil Borg and they need to fight for the collective good of the evil Borg like I feel like one of the ways in which uh all of these like kind of modern epic myths misled me when I was much younger is they do make it look like the world basically is just a bunch of good guys
fighting against you know the evil Orcs sron Empire or whatever and I'd be more in I more interested in seeing kind of social science fiction so like basically like science fiction or fantasy or whatever that um explores also all of these kind of complex ideas about how people can interact and kind of how political systems can work how um economic systems can work how they can
fail and particularly how they can fail in ways to create interesting stories without anyone being literally Hitler if you could go back into the distant past for a year a time and place of your choosing you have the linguistic skills and immunity against disease to the extent you need it maybe some money in your pocket where would you pick to satisfy your own curiosity uh where would I pick for to do what to spend a
year there spend a year as a quote unquote tourist you could pick ancient Athens or pre-conquest Mexico or medieval Russia H it's a kind of social science fiction right oh yeah totally um I feel like let's see first possibly first year of World War II in one obviously one of those areas that's close to it but but still reasonably safe from it mm possibly um sometime in the N uh in some per some period of kind
of political uphe upheaval Revolution whatever like in the like basically in the time in the time before this kind of great stag this kind of great well not quite stagnation but great moderation of pretty much everything like basically you kind of experience more what human behavior and what Collective human behavior would look like like once you push humans further into extremes and people aren't
as comfortable as they are today what kind of social delusion or irrationality do you think should be more prevalent H that's very interesting one um in modern times possibly a belief in progress and you think more people should believe in that even even though it may not be true even though it's uh true in complicated way well it's uh true sometimes in complicated ways and
parts of it are definitely false in in in a bunch of situations is there a word in Russian you use when you think or talk that is no obvious English equivalent um I don't think so so you pretty much think mainly in English at this point I'd say so yeah uh the geography of tech Innovation so many things are crowded into San Francisco Silicon Valley rents are very high crypto has not really been the same but
what do you think the geography of tech Innovation will look like 20 or 30 years from now um so first of all I think that like it's definitely not possible for it to concentrate more basically just because the rents are too damn high and as I um I've been L to understand one of the latest attempts to make sure like more actual Supply uh supply of living space can get built in California recently got shut down so like basically
if RS continue being too damn High then even like it's just a matter of basic economics and math that the majority of developers are going to live in places other than the big centers and I think as um technology in terms of ability to communicate remotely improves like it it seems to only make more sense that the premium from being inside of a center is going to reduce reduce to some extent
over time so I would definitely say that more geog graphically distributed at least in those kinds of industries that aren't kind of pH physically Capital int Capital intensive is going and that are more sort of Lone Wolf friendly is going to happen even in the crypto space which is very Lone Wolf friendly I think it's extremely geographically distributed already the other then there's another
question of like how do you measure technological innovation because there's a lot of metrics under which the US is really great China is really great but Europe is like completely not even on the charts but those metric tends to be fairly kind of big money oriented and if you look at like broader Innovation people doing interesting stuff and plenty of things happen in Europe as well and you're from Europe well and oh
Russ yes Russia the Eastern edge of Europe sure yeah how will Quantum Computing matter if at all for crypto assets oh it absolutely matters um basically because Quantum Computing will make a lot of cryptography that's used in modern times just not work anymore right so digital signature algorithms won't work anymore public key encryption won't work anymore now the good news is uh zero knowledge
proofs snarks won't work anymore the good news is that for everything that doesn't work anymore people have already come up with replacements for the over a decade ago and so you know you have hash based signatures you have Starks you um for for zero knowledge proofs you have fancy elliptic Cur misogyny based publicy encryption so I think it will force a transition but like ultimately we do know how to adapt and like
basically the cryptocurrencies that will suffer the most are just the ones whose governance is the most kind of stalled and dysfunctional and won't be able to figure anything out in time is p equal to NP I would bet 90% no that's my guess as well is backward time travel possible and if so is that also a problem of computation if someone goes back in time and they see Hamlet and they capture
Hamlet so I definitely don't believe in a theory that says you can go back in time but like somehow the the forces of Fate basically ensure that whatever you cause to happen ends up turning into whatever is the modern world because that just seems very uh it just seems computation theoretically incredibly implausible to like it just requ it would require some kind of conscious God that keeps on like pushing the
consequences of people's actions so um into so that they end up not having an effect so if what that means is that if you do travel back in time you basically what you're really doing is you're traveling diagonally back in time into a different universe and um is that possible I don't know if I was like if you put a gun to my head and force me to give a binary answer I'd say no but the
answer could totally be yes the fees of the financial sector seem stuck at around 2% of GDP for a remarkably long period of time and this is across an error where many other costs even in percentage terms have come down uh why do you think there's this sticky with financial fees and where's the first place where those fees will start to give in your vision of the future so it could be that these are kind of
constants that have to do with rent extraction rather than with the any particular features of the technology right so like for example when I was at this economics and computation conference in atha there was this presentation on high frequency trading and one of the uh things that was mentioned in this presentation is that how even though between the year 2000 and now the um ability uh like basically
the uh the rate at which kind of disequilibria between different markets and between different assets that should have the same price kind of snap back into position even though that time has decreased from something like 1 second to something like 50 milliseconds the rate of profit that these um hftd firms have been making has stayed pretty much constant and he came up with this economic model that basically said if
you look at what a market Market how a market works and you come up with a model that basically says oh it's it's not actually about um the absolute speed of the market it's about basically whether or not the kind of arms race between trying to cancel orders as they become irrelevant and trying to snap up other people's orders that that that are now mispriced then you get this result that the rate of uh rent extraction the
rate of profit the rate of social loss basically totally does not depend on the the actual absolute levels of technology and absolute levels of speed so I think like if there is some Dimension to finance which is some kind of Zero Sum conflict then that's uh that seems very plausible and another thing that I might want to look at is like percentages of expenditure that's military expenditure
like over thousands of years like I know that it in two like 2 to 4% globally is definitely low compared to historical Norms but it seems to be very possible that there's some constant amount that at least um got or uh that Humanity has been kind of hanging around between you know 3000 BC and 1945 why are there bid ask spreads at all and is it possible to get rid of them without just putting
them somewhere else such as into mining costs um so ultimately bid ask spreads basically have to exist and for a couple of reasons so one of them is that offering a has zero fee Market maker is itself a costly activity basically uh because if you do the equations you get this result that like you're instead of earning the average of two uh of the earnings of two assets you're earning the the geometric mean of
those two assets which is lower than the arithmetic mean and so you lose a bit of money and another one is this kind of adverse selection argument that basically says if someone is trying to trade against me then that or or rather if someone is willing to take my offer then that by itself is evidence that my offer could be mispriced and so because of that people are not going to be
inclines at put pushing bid offers too close to other people's asks so I think it's a combination of uh inefficiencies some of which are techn are technological some of some of which are fundamental and last question by the way if we're asking what could economics teach us that would help us more I would think a better the theory of bedes spreads is one of the big gaps because even Sunshine trading where you would
think the information as symmetry would be away uh there's still a bit ask spread it may be lower but not as much lower as you might have thought but final question what's the most fundamental reason why there seems to be a cost disease in say Healthcare and education and is this also rent extraction or is it something fundamental about teaching humans and fixing them up H I can't say I'm an
expert on cost disease topics though if I had to kind of blab for my knowledge of economics and personal experience both with uh you know North America and places like Asia that have less of them first of all it definitely is the case that places that don't have that seem to not have cost disas have more of a kind of just get things done culture um whereas um places that do seems to have
more of this culture of like oh you need like five kinds of approvals and I don't even mean just regular or it could even be like in intra institutional conform conformism of some kind um it could also be because if you want to get things done cheaply then you have to basically get in people's way and getting in people's way is more difficult in kind of more established societies where
people have more expectations about things so it's basically a fancy way of the equivalent of like building a Subway is cheaper if you can just bulldoze a bunch of people but that applied to you many more context and in much more abstract ways as well um another one is probably that like Robins H's argument that wealthier societies tends to do kind of more s signaling expenditure and also tends to do like a lot of the EXP
uh the higher costs may have to do with basically basically increasing kind of comfort and enjoyment even though that's even though people aren't willing to admit that that's what they're optimizing for like when you think of universi having impressive campuses instead of like just being based in like piles of cheap real estates scattered across downtown I think that's part that's kind of part of why of why that
happens um and then another thing is that there are cases I think uh where like higher efficiencies are only possible because of economies of scales that just aren't uh that just aren't there in some contexts so in the case of um like like Land Transportation infrastructure particularly and like you go to Asia and you know like China Taiwan Korea Japan like all have very impressive fast trains and you might ask
well why don't we have them here and then you look at people that are actually trying to build those trains and it's like oh5 billion do dollars for like how many people and cost disease is part of it but also I think part of it is that there is there just are especially in lower population density environment there are going to be contexts where more kind of decentralized solutions and in this case
I mean like decentralized even as in Uber pool actually do end up making more sense italic it's been a pleasure thank you very much thank you thanks for listening to conversations with Tyler you can subscribe to the podcast in iTunes Stitcher or your favorite podcast app and if you like this podcast please consider rating it on iTunes and leaving a review this helps other people find the show