Vitalik Buterin: On Cryptocurrency and the US Crackdown

Translator's Preface

This article is based on an interview with Ethereum founder Vitalik Buterin conducted by CNBC in September 2023. The article describes Vitalik's situation in the face of global cryptocurrency suppression policies and his confidence in Ethereum and his enthusiasm for crypto technology. In the interview, he talked about how he and the Ethereum Foundation responded to the increasing cryptocurrency suppression in the United States and expressed his concern about the development of cryptocurrencies in developing countries. He hopes that technology can truly be used by mankind and play a positive role. In him, we see that the crypto world is not just hype and speculation, and we can really use crypto technology to do something meaningful for human development.

Overview of this article

This article is Vitalik Buterin, the man behind ethereum, talks crypto and the U.S. crackdown (Vitalik Buterin, the man behind Ethereum, talks about crypto and the U.S. crackdown), written by MacKenzie Sigalos. The full text is about 4,500 words in total, and it is expected to take 25 minutes to read.

Main content

"Vitalik Buterin, the man behind Ethereum, talks about cryptocurrency and the US crackdown"
Translated by: Elsa

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Key points:
1. Vitalik Buterin, co-founder of the second most popular cryptocurrency, talked with CNBC's MacKenzie Sigalos in Prague, one of Europe's new cryptocurrency hotspots.   

2. He discussed the growing cryptocurrency crackdown in the United States and suggested that developing countries continue the cryptocurrency revolution.   

3. He also talked about the huge role he played in the cryptocurrency he created, but believed that his work (Ethereum) has taken on a life of its own and is therefore more resistant to government suppression.

Ethereum co-founder Vitalik Buterin in Prague, where he joins like-minded programmers seeking to change the world through crypto technology.

CNBC

Prague — For Vitalik Buterin, the concept of home is fleeting.

The Russian-born programmer created Ethereum when he was in his teens. Now he doesn't stay in any one city for too long. At the same time, there are more and more places he won't go.

“There are countries that I would have loved to visit three years ago that I’m very worried about going to today,” Buterin told CNBC in the Czech Republic.

Buterin specifically named his native Russia as one of the destinations he now avoids. The Canadian immigrant is of Ukrainian and Russian descent, but he actively supports the resistance movement in Ukraine. It’s also clear that the pursuit of privacy technology and open source code in certain global jurisdictions carries risks, giving Buterin new hesitations — for example, the creator of the open source protocol Tornado Cash faces charges in both the Netherlands and the United States. Some people in the still-nascent cryptocurrency market use Tornado Cash to protect their privacy, but the mixing service can also be used by criminals or nation-states to launder money. Many in the industry worry that the crackdown will not only hit the bad guys who use the tool, but also set a dangerous precedent for developers who build tools.

“I’m definitely more worried about that even in countries that the mainstream media thinks are still pretty normal,” Buterin said.

This decentralized lifestyle suits Buterin well. The 29-year-old programmer’s impact on the crypto space goes beyond lines of code or geographic location. Prague is a new center of gravity, and it’s where he’s now found refuge, where he joins like-minded programmers seeking to change the world through crypto.

Ethereum co-founder Vitalik Buterin speaks at ETHPrague 2023, an international conference that draws crypto developers from around the world.

Photo: Pavel Sinagl

We meet in a sparsely furnished room on the top floor of a sprawling industrial complex in the Holešovice district. Once associated with industrial facilities like slaughterhouses and steam mills, the area is now home to bohemian artists and some of the most rebellious believers in crypto. Inside the seemingly ordinary building is a honeycomb maze of winding staircases and labyrinthine corridors leading to its fortress-like interior, which, to those unfamiliar with crypto, mirrors the complexity of cryptocurrencies.

Today, the biggest challenge facing Buterin and the Ethereum community is ensuring that the cryptocurrency provides actual value to people.

“The way I look at the Ethereum ecosystem is that the last ten years were about trying and perfecting Ethereum. This ten years is the ten years where we have to actually build something that people use,” Buterin says, clasping his hands together and leaning forward from his ergonomic kneeling chair.

He’s arguably the most influential crypto developer alive today, but when he wrote the Ethereum white paper in 2013, Buterin wasn’t trying to steal the spotlight. Still, after years of shunning public acclaim and turning down countless media speaking invitations, he can’t shake off fame — or the gushing words used to describe him.

As crypto markets peaked in 2021, the 27-year-old Buterin was named the world’s youngest crypto billionaire. In China, he’s known as “V God,” Time magazine dubbed him crypto royalty in an April 2022 cover story, and almost anywhere he goes on the planet, he’s swarmed with fans eager for his attention — and selfies.

But in reality, that’s not who Buterin is.

He’s not a crypto prince. He’s not the fervent leader of a new generation of cypherpunks. He’s not the hardest workaholic, nor the biggest nerd. He regularly donates his wealth to worthy causes, lowering his net worth. And, by his own estimation, he’s not the ultimate authority on the Ethereum network.

He is, however, a man who cares deeply about achieving his vision: a world where everyone, no matter where they live, has equal access to money.

ETHPrague 2023 takes place at Paralelní Polis in the Czech Republic.

Photo: Pavel Sinagl

Buterin has found that cryptocurrencies have made the most difference in emerging economies — a phenomenon that has gained momentum in recent years.

“Some of the things we normally view as basic and boring are exactly what provide a lot of value to them, like normal payments and savings,” Buterin said of low-income countries.

“Being able to participate in the international economy — that’s something they don’t have, and that can provide tremendous value to people there,” Buterin told CNBC. “It’s hard to be interested in something as abstract as decentralized social media when you don’t have even those basic things.”

As U.S. investigators bring criminal charges against Sam Bankman-Fried and others, and federal regulators like the Securities and Exchange Commission begin to crack down on so-called unregistered securities transactions, activity in the cryptocurrency space has begun to shift overseas.

In contrast, U.S. investors often view cryptocurrencies as a get-rich-quick opportunity and as a way to trade volatility in markets that are less regulated than traditional securities markets, while Buterin generally prefers to focus on developing markets around the world — including Africa, which he visited in February — where he sees real-world examples of the technology he helped build being used in everyday life.

“When I visited Argentina in late 2021, a lot of people were using crypto, a lot of people liked crypto. I was actually recognized more times on the streets of Buenos Aires than I was in San Francisco,” he said.

But for crypto to truly work on a global scale, it will eventually have to move away from centralized entities like custodial exchanges, and it will have to be easier to use, Buterin told CNBC.

“It was easy for me to find coffee shops that accepted bitcoin and ether — but the thing is, they were all using Binance,” Buterin said.

He said he admires centralized exchanges like Binance for providing a smoother user experience for non-technical people living in countries with a GDP per capita of less than $10,000. However, he believes it must be more decentralized.

“These centralized players are vulnerable to outside pressure and their own corruption,” he said.

Last year (2022), a series of bankruptcies in the cryptocurrency sector exposed fraud throughout the industry.

Many people became rich before the rate hike, and then the Luna crash in May 2022 triggered a chain reaction, which led to the fall of the entire market and triggered a cryptocurrency winter that has lasted to this day. For example, Bankman-Fried, the former CEO of the now-bankrupt cryptocurrency exchange FTX, faces criminal charges accusing him of orchestrating a multi-billion dollar fraud scheme. Binance, the world's largest cryptocurrency exchange by trading volume, is being sued by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) on a series of charges, including allegations that Binance mixed billions of dollars worth of user funds with its own funds.

Buterin said he thinks the ideal solution is to write better code so that users can transact directly on the chain, rather than blindly trusting a centralized intermediary to act in the best interest of the customer.

"We need an on-chain experience that is truly usable by ordinary people," Buterin said.

"We need ethereum payments to be able to be done in a way that the transaction fee is less than a nickel; in a way that the experience is not terrible and there is not a 2.3% chance of random failure; in a way that you don't need a PhD in ethereum science to figure out what's going on," he said.

Ethereum co-founder Vitalik Buterin speaks at ETHPrague 2023, an international conference that attracts crypto developers from around the world.

Photo: Pavel Sinagl

Privacy and security are also top priorities.

“People need to have really secure wallets where even if they lose their private keys, they don’t lose everything,” Buterin added.

National digital currencies could offer the ease of use he envisions, but he believes decentralization is also crucial, or they will evolve into just another version of the existing banking system — just with more surveillance built in.

“I think five years ago I was more hopeful about this space, and probably naive, because there were a lot of people who wanted to do things like make countries blockchain-friendly and provide real transparency and verifiability guarantees and some level of real privacy,” Buterin said of central bank digital currencies (CBDCs).

CBDCs are blockchain-based virtual currencies that are fully regulated and backed by a country’s central bank. The People’s Bank of China is arguably the leader in the CBDC space so far, having been piloting CBDCs for nearly a decade. As of June 2023, transactions using the digital yuan, or e-RMB, have reached nearly $250 billion. But as CBDCs gain popularity, concerns have arisen about the financial surveillance and monitoring tools that could be included in these government-issued digital currencies.

“As these projects mature,” Buterin said, “the privacy part fades away and everything gets closer and closer to 1.0. We get systems that are actually not much better than existing payment systems because they’re ultimately just different front ends to the existing banking system.”

“They end up being much less private and basically break down all the existing barriers against businesses and governments at the same time,” he said.

Building a Brave New World

Vitalik was introduced to Bitcoin in 2011 by his father, Dmitry.

Both Vitalik and Dmitry Buterin, a computer scientist who once lived outside Moscow, were intrigued by the idea of ​​a decentralized currency that wasn’t controlled by a government or central bank. But Vitalik was keen to advance this new decentralized ledger technology so that it could be more widely used.

What ultimately made him famous was embedding smart contracts — programmable code designed to replace middlemen, such as banks and lawyers, in certain types of business transactions — into the blockchain. It was a game-changing innovation for the industry, leading to a surge in projects and initial coin offerings (ICOs) on Ethereum.

Today, the network has become a major building block for a variety of crypto projects, including non-fungible tokens (NFTs), decentralized finance (DeFi), and Web3. The latter is still an elusive buzzword that stands for the third generation of the internet: it’s decentralized and built using blockchain technology. Meanwhile, Ethereum’s native token, ether, is the world’s second-largest cryptocurrency by market value after bitcoin.

In Ethereum circles, hackers are known as BUIDLers — a deliberate misspelling of the word “builders” in a nod to Bitcoin’s HODL, or “Hold on for dear life” meme. The meme comparison may seem silly, but it nails the difference between these two very different groups of people.

While Bitcoin developers tend to move slowly in their development, prioritizing security and decentralization above all else, Ethereum programmers are more daring. While they don’t necessarily break existing systems in their development, they do move quickly and aggressively to adapt.

Last year, for example, the Ethereum network fundamentally changed the way the blockchain secures the network and verifies transactions, slashing its energy consumption by more than 99% in the process. Prior to the upgrade, both the Bitcoin and Ethereum blockchains had vast networks of miners around the world who run highly specialized computers that verify transactions by calculating mathematical equations. Proof of Work consumes a lot of energy and is one of the most criticized aspects of the industry.

But with the upgrade, Ethereum moved to a system called proof-of-stake, which replaces miners with validators. Instead of running a bunch of computers, validators use existing reserves of ether to verify transactions and mint new tokens.  

Buterin insists that Ethereum's move to a proof-of-stake model is more likely to resist government intervention.

"Proof-of-stake is actually easier to anonymize and harder to shut down than proof-of-work," he said. “Proof of work requires a lot of physical equipment and a lot of electricity. That’s what drug enforcement agencies have been sniffing out for decades.”

Of the Ethereum network, he said: “On the other hand, you have your laptop. You just install a VPN somewhere and hide it in a corner. It’s not perfect, but it’s definitely easier to hide.”

The Programmer Behind the Scenes

In previous appearances in Denver and Paris, Buterin’s stage presence was tinged with a subtle unease. But during the one-on-one in Prague, he really came alive, dropping those little tricks and effortlessly transitioning from elusive programmer persona to open-minded educator.

His transparent communication style, combined with his willingness to engage in deep philosophical discussions on topics like quadratic funding (funding Ethereum public goods projects by crowdfunding a central cryptocurrency treasury and then using an algorithm designed to optimize spending decisions) and concepts like soul-bound digital identities on blockchains, has made him a trusted thought leader within the cryptocurrency community.

Notably, Buterin is also very willing to answer any questions thrown at him — especially those criticizing the Ethereum network and the scope of his current leadership.

Take the important role he plays in the cryptocurrency he created. Unlike Bitcoin's creator, the anonymous Satoshi Nakamoto, Buterin is more of a spokesperson for Ethereum.

Some people see this as a major weakness of the network, because governments can target Buterin or the Ethereum Foundation. Buterin dismisses these arguments. Five years ago, he said, a lot of things depended on him and the foundation, but today, clients — software applications that run independently on top of the blockchain — do a lot of the work. Ethereum, he said, has become an autonomous ecosystem with no single point of failure.

Buterin explained: “Even if the foundation gets some kind of magical freezing order in every jurisdiction at the same time, and if something happens to me at the same time, the decentralized group of Ethereum client maintainers can continue to operate.”

They call it a philosophy of subtraction.

“I think one way to describe its goals is basically that the Ethereum Foundation is not trying to be a zealot, a long-term operator, or a juggernaut, or anything like that,” he said. “The goal of the Ethereum Foundation is to foster things that, once they start, can continue in a completely independent way.”

As for what’s next for Ethereum, Buterin said the priority is to focus on privacy and scalability through ZK Rollups.

ZK-rollups are where transactions are bundled into sets and executed off-chain. This second-layer technology will play an important role in future upgrades, which will ultimately help make Ethereum faster and cheaper to use.

Buterin said: “There are definitely divergent interests to a certain extent, and I think the ecosystem really needs to find a way to fight for the right to continue to build things in the way that we’ve been accustomed to for thousands of years with privacy.”

To clarify: Buterin does not consider himself to be targeted by any particular country or that he is a lawbreaker, but he has concerns about visiting certain countries because of his work.