Following the long-awaited transition of the Ethereum (ETH) network to the Proof-of-Stake (PoS) algorithm, Vitalik Buterin compiled his previously published articles on crypto technology into a book titled Proof of Stake: The Making of Ethereum and the Philosophy of Blockchains. It is a collection of his notes and essays on the development and philosophy of blockchain written over the past 10 years. The book can be purchased digitally and physically, along with unique copies signed by Buterin in the form of non-fungible tokens (NFTs).

WIRED talked to Buterin about the future of decentralized technology, the innovation behind The Merge and the future of Ethereum. We recap the most interesting parts of the interview.

About new opportunities

Ethereum's founder highlighted three important benefits that made the Merge possible. The first was that the ecosystem spends much less economic resources to keep it running compared to when the network ran on the Proof-of-Work (PoW) algorithm.

The next factor Vitalik highlighted was Ethereum's increased legitimacy after the network switched to PoS. “A lot of institutional actors, whether it's governments or corporations, their biggest reason to be skeptical of or not want to use Ethereum has been the proof of work and environmental aspect,” Buterin noted. He expects the abandonment of PoW will bring into the ecosystem those for whom the environmental impact of mining was critical, as well as many new users from those who “have been quietly on the sidelines.”

Another benefit of the Merge was the opportunity to redesign the protocol in many ways. According to Vitalik, one of the biggest problems with blockchains is scalability and, as a result, expensive transfers. He sees the very architecture, in which every node on the network has to validate every transaction, as the root of the problem. “We have ideas around technologies to fix that and turn Ethereum into a system that processes transactions in a way that's still decentralized, but a lot more efficient,” Vitalik summarizes.

About the main innovation

When asked about a specific example of what was unavailable or inefficient in Ethereum before the Merge, Vitalik again talks about the scalability of the network: “Ethereum has what we call this two-layer scaling model, and the plan is to upgrade it a little bit, by making it possible for the chain to process a much larger amount of data.” He says there are separate protocols that take that data as components and create “kind of like mini-Ethereums inside of Ethereum,” allowing many more transactions, up to 100 000 per second.

Vitalik specifies that there is still a lot of work to be done within the ecosystem to develop such second-layer protocols, but it will be much easier after the Merge, and the ability to scale the network to such results is probably one of the most important goals after the upgrade.

About the market impact

“To some extent I look forward to the bear market,” Vitalik says. In his opinion, during the 2020 and 2021 bubble, cryptocurrencies were technically unprepared for the hype surrounding them during that period. He believes that if the transition to PoS had been delayed for a few more years and coincided with the new historical highs of the crypto market, “things could have been vastly worse.”

Eight myths about Ethereum's migration to Proof-of-Stake

“Transaction fees on Ethereum got up to $5 and even $20 [per transaction] last year, and if there is another big price bubble we could easily see fees go up to $100 or $200. In that kind of a world, talking about the promise of crypto as a way of empowering the third world, banking the unbanked, supporting people who are marginalized by existing institutions, just clearly starts looking ridiculous,” Vitalik reasons, adding that he always wanted to address the issue of scalability before the ecosystem was massively distributed and noticed. Switching to PoS doesn't solve the fee issue by itself, but “it is the big thing that we've had to get out of the way before we can go full steam ahead on doing the stuff that will.”

About NFTs and games

According to Vitalik, non-fungible tokens have to be of some value to the owner. In the early stages, there were plenty of “tradable art and cat pictures,” but to maintain long-term value there needs to be “some benefit of holding it other than just being able to say that you hold it.”

Limits of ownership. Why you cannot use purchased NFTs as you like

Vitalik considers addresses in the ENS domain system to be the best use of NFTs. The ENS domain itself is technically an NFT on a particular wallet, and in order to send any token to that wallet, you can specify not its address in its usual format, but replace it with a conveniently readable address, such as Vitalik.ETH.

Buterin calls play-to-earn (P2E) games another successful application of NFTs, specifying that a successful NFT-integrated game should be interesting for the user by itself, without monetization. The first to make a blockchain game that is really interesting to play will win, Vitalik believes.

About decentralization beyond cryptocurrencies

When asked about blockchain use cases outside of the usual scenarios, Vitalik considers the voting process to be a good example. People talk a lot about the blockchain censorship resistance, but the very phrase “censorship resistance” usually gives rise to inappropriate associations, says Buterin, specifying that immunity to censorship is necessary for any voting.

“If the government can censor your ability to vote, that means that the entire democracy just completely stops working,” Vitalik argues, "It’s important for voting systems to have this really strong property, that if you want to vote, then you should be able to, and you should be able to be really certain that your vote actually went to where it was able to be counted.”

About regulation

According to Vitalik, we should consider two layers of cryptocurrencies: the base layer, which is the technology itself, and the application layer that exists on top of it, which is those applications and services that use it. “For the base layer, we try very hard to prevent it from falling under regulations, especially by any one country. It's critical for the credibility of a platform in every other country that one country not have too much power over it,” Buterin explains.

Speaking of the application layer, he explains that there are many applications in different areas, and some specific uses of blockchain may already fall under regulation, citing, among other things, the precedent of the Tornado Cash mixer being sanctioned. “It's much more difficult to make a public argument that they should be completely free of any kind of regulation,” Vitalik admits.