Last week, Isabella Santos released an 11 minute video entitled “Ethereum – How a Lie Became Worth Billions”, which has had a good number of views and retweets. I watched it and am sorry to say that it contains a large number of inaccuracies and bad assumptions. I made some notes in a Telegram group and it turned into an essay, which I’ve saved here from posterity and future reference.
(For anybody who does not already know, I am the Executive Director of the non-profit supporting Ethereum Classic, and I organize the POW Summit conference. I’ve spent years of my life on both sides of the fence (Ethereum Foundation/ConsenSys and the Ethereum Classic) and I’m a Bitcoiner too. ETC is POW forever, and is one of the primary POW ecosystems – #4 of daily mining rewards – ahead of LTC and BCH. I know the key Ethereum people personally and had a front row view of the launch and or the DAO hack.)
I’ll watch through it all again and make some notes here.
Ethereum tattoes, not a cult, “investing” – Welcome to memes. You could say this about anything. People like affinity groups.
Vitalik Buterin – net worth was zero now $1.5B. So we hate money now, do we? Having known Vitalik for 10 years I can assure you that he is one of the least money-motivated people who I have ever met. I don’t believe he even owns a house or a car. He just nomads around the world like a cat backpack and a laptop. He is very humble and generous with his time. You can disagree with his values. You can say that Ethereum is stupid and useless, but presenting him as a pantomime baddy who created Ethereum to get rich is just not credible.
“Wall street wants a slice of it” – What, like they do Bitcoin?
“Founding of Ethereum based on a gigantic sham. Biggest lie every told in investor history. People don’t want you to know about” So here comes the over-the-top rhetoric. Ethereum did a crowdsale of a big chunk of premine. Everyone knows this. They knew it at the time. Everyone has known ever since. There was no deception here. People could decide of their own free will whether or not to spend some of their BTC to fund development of the first ever smart contract platform. The funds did not go into Vitalik’s pocket. They went to fund the Ethereum Foundation which has funded development of the protocol in numerous ways for a decade. People who chose to participate in the crowdsale made huge profits for the risk they took in that investment. 1000 ETH per BTC is a 50x relative gain over holding BTC over those last 9 years.
Ethereum and Bitcoin are not the same. That is another key thing to understand. Bitcoin is money. Ethereum is more like a financial application platform. Presenting BTC vs ETH as a zero sum game is not a useful way to think about this stuff. Ethereum is not trying to be Bitcoin. Ethereum does not have to “lose” for Bitcoin to “win” and visa versa.
“Vitalik Buterin thought he could do it even better?” – scrunched up face.
No, because he wasn’t building another Bitcoin.
He was the editor of Bitcoin Magazine and was deeply involved in Bitcoin.
He wanted a smart contract platform (as did huge numbers of other people) so that we could try building a whole range of decentralized applications, not just money.
Adding that functionality to Bitcoin had already been ruled out (would not make sense), so this turned into launching a new platform. Building on Mastercoin had also been considered.
“Internet of money should not cost 5 cents per transaction”. No, it really shouldn’t. Lightning still has not solved that. No Bitcoin L2s have solved that, though I have high hopes with BitVM enabling trust-minimized bridges to a plethora of Bitcoin L2s.
“What would Bitcoin’s launch have looked like if it was launched the same way as Vitalik’s approach”? This is not a useful question to ask, because it implies that Ethereum should have been launched the same way as Bitcoin, which was not feasible. It was a one-off. A virgin birth, cannot be replicated. As has been shown by the fact that Ethereum and many other smart contract platforms have been in-progress for nearly a decade and are still under heavy work, a “virgin birth” was not possible for these platforms. They needed funding, which is why they were launched the way they were – crowdsale/ico. You can argue that lots of these did not deliver value for money for the investors and did not build anything much. No way at all you can argue that for Ethereum. It actually delivered huge value for the investors and built the foundation for the whole of the rest of the cryptocurrency ecosystem. Without Ethereum you would have had little other than Bitcoin ever created. Huge amounts of cryptographic and crypto-economic research would never have happened. We would never have had DEXes or ZKP research or rollups or …..
“Contacted a former Goldman Sachs employee”. So Joe Lubin was one of eight founders who ended up forming around mailing lists and prior Bitcoin connections. Vitalik did not contact Joe. He came a couple of months after other founders. Unlike Vitalik, 19, and others in their early 20s, Joe actually had some business experience, and he also provided some funding to move the project along before the crowd-sale (as did Anthony Di Iorio), which happened 8-9 months after the white paper. Many people were working unpaid for all of those months. Those people were compensated after the fact with ETH tokens, and those loans repaid at the same time. Joe’s work at Goldman Sachs was likely a contributing factor to his later involvement in Bitcoin and then Ethereum (seeing how the sausage was made and being revolted). Saying “X used to work for Y” to discredit them is pretty weak sauce. Joe could have retired and sat on a beach forever at that point (and had been living in Jamaica) but instead choose to dedicate another decade of his time and money into helping the Ethereum ecosystem grow by essentially blowing his whole ETH stack on funding project teams at ConsenSys).
“World Computer” – yes, that was the goal. It’s easy to be skeptical of such a lofty goal, but that was the earnest intent, yes. Not for “pitching for money” but because that was the whole purpose of a Turing-complete blockchain. There was no deceit. That was the shared goal.
“What if I create the tokens and sell those to investors?” It was not a new thought. Ethereum was not the first ICO. There were a couple of them already happened. It was an obvious thing to do.
WRT – Company and raising money and SEC, etc. Fuck the SEC. Honestly. They have done nothing to protect investors and have done huge harm to all of us. Trying to paint Vitalik as a demon for attempting (and likely succeeding now, it seems) to route around the SEC to let people voluntarily invest into the first attempt at building a smart contract platform was a noble thing, not a nefarious thing. The investors were not harmed. They made out like bandits. It was a win-win. So fuck the SEC and fuck the thought that there was anything “bad” here. Again, the funds went to a foundation, not to Vitalik personally. It was a collective enterprise. Where on Bitcoin, Satoshi did everything, you cannot drop Vitalik in there and pretend it is the same.
“Registered shares in a company” again. Fuck that.
“Takes in $18M in investment before anybody has there hands on the product.” That isn’t actually true, because the crowdsale happened around 9 months after the white paper was written, and there were already technical specifications and multiple working software clients, and an active testnet. It was just under a year later that the mainnet launched, but pretending that it was just magic money for nothing is plain untrue. In the 2017 ICO phase there were many teams who delivered nothing but a white paper prior to fund raising, but that absolutely was not the case for Ethereum.
“If he ran out of ‘Bitcoin’ to sell, he would just make more out of thin air”. That is untrue. The terms of the sale were clear upfront. However many ETH for BTC ratio, and the sale ran for a fixed amount of time. The ultimate supply of ETH depended on the sales, but it was not some reactive thing where more was being “printed” on the fly.
“He would be basically printing money” – that is how presales work, yes. It is a market where investors are deciding if they want to invest in something which is completely new, with huge potential and also huge risk. It’s easy to look back 9 years later (especially if you were not there) and think the ETH was a sure thing. It wasn’t at all. Even after the mainnet launch the price was very low for a year or two. The EF nearly ran out of money in 2015, only just after the launch. Vitalik and the EF were not making out like bandits in those early days. Far from it. More like a very edgy startup.
“He sets up a company called BtcSuisse”. No, he didn’t.
BtcSuisse were a Swiss Bitcoin Exchange/company who helped with the crowdsale.
Look closely under her text at 7.03. That says EthSuisse, not BtcSuisse.
EthSuisse was a for-profit company which existed prior to the creation of the Ethereum Foundation, while there was still internal debate about how the corporate structure should work, and whether or not is should be for profit or as a non-profit. It only existed for a few months prior to the “Red Wedding” in which Charles Hoskinson got kicked out of Ethereum. The decision was taken there in May 2014 to create the Ethereum Foundation and that everything would be done through that non-profit.
“Would later add functionality to allow people to make their own versions of money” No. The ability to create tokens with programmable behavior was fundamental to the platform. It’s Turing Complete, so you can program anything you like. It’s the whole point. That was not some nefarious thing which was sneaked in there. One example was that Ethereum has not go any built-in support for multisigs. That was done intentionally, so as not to constrain the design space. There are numerous multisigs now – like Safe – which are a layer above the L1 platform itself. Launching tokens was something which was around long before Ethereum. See Bitshares for a key example.
“Not without taking a cut, of course”. Well that is deceptive too. It’s just gas fees to pay for transactions.
“The DAO”: “ok can you guys stop trading”. So that happened in an emergency situation, and some exchanges stopped trading ETH voluntarily until the dust settled. It’s not too dissimilar to situations where Bitcoin needed emergency fixes and the devs coordinated with miners. Again, it’s not nefarious.
“Push a proposal to centrally change the ledger”. So this is a really key point which people get wrong all the time, and I am likely one of people in the world closest to this from both sides. I worked at the EF at the time, and then I’ve worked on ETC on the other side for 5 years.
I can tell you with complete certainty that this “Vitalik is a dictator who pushed this to save his friends and investors” is completely untrue. The less comfortable reality is that the majority of the Ethereum community was in favor of the change (maybe around 80% of so). Vitalik stayed very neutral and did not speak out in favor of the hard fork at all. Others did, like Gavin Wood, but the EF as a whole just presented options to end-users, and the users chose what to do. Nobody knew what was going to happen ahead of the activation block. It could have gone either way.
Ultimately there were irreconcilable differences of option in the two camps, with a minority (ETC) seeing ETH as Bitcoin with smart contracts, and wanting it to be hard money and of course you do not change the ledger (this was my immediate reaction), but a large group seeing ETH as a decentralized application platform, and $ETH as oil for the engine, not as money. Seeing this as a bug in the platform which there was an opportunity to fix (though an ugly fix). And thinking “fuck you, hacker! You think we are so rigid that we will just let you steal all that money which was intended to fund ecosystem development. Well guess what. Fuck you”.
Ethereum community is not Bitcoin community. The platforms were and are not apples-for-apples. So this was not Vitalik being a dictator – it was just the community expressing their wishes, and it really was that strong a consensus. Ultimately, decision making boils down to what software people choose to run. And it was the forked chain most chose. Which was sad to me, but also empowering to everyone, because ETC was the first ever minority chain which survived after a chain-split. It had always been assumed that it was a zero-sum game and the losing chain would die, but that did not happen here. There were miners who chose to continue mining the original chain and that acquired a market price when Poloniex listed it, and that became ETC. That was wonderful. If showed that people could not be compelled by a majority against their will. Unlike the real world where you have to live under whoever wins the elections, for blockchains you can split the universe and have both outcomes in parallel. Be involved in the one you see value in. Or both!
“choosing between investors or decentralization, he would keep investors happy” – again, this is trying to personalize this onto Vitalik, but it was not his choice. It was the community, and both outcomes happened.
“A few years later he would get rid of the concept of mining entirely. Act like it never happened”. So transition to POS was part of the white paper in 2013. This was not a surprise to anybody, and again was something which most people in the Ethereum community saw as a positive and were happy to see FINALLY come to fruition in 2022.
I don’t see POS as a positive for Ethereum myself, and likely many others here do not either, but there was no slight of hand here. If anything, the POS fans were the ones who had a rightful gripe, because they’d been expecting that to drop as early as 2015. It came to feel like a long con! ETC have been delighted to scoop up a large chunk of those Ethash miners after The Merge, gaining a 10x in our hash rate and stepping out of the minority hash position which was so insecure.
“Given in direct proportion to the number of ‘Bitcoin’ somebody holds”. Again, not exactly true. Choosing to stake Ethereum is opt-in, not automatic, and you are doing work just like mining is doing work. You need 32 ETH locked up (high opportunity cost) and if you are staking yourself you need a decent computer and especially really good connectivity. If you hit issues then your stake starts getting slashed, cutting deeply into your yield. Many stakers end up using custodial services rather than giving themselves another job with this, which undercuts the whole intention. But yeah – one of many of the issues with various POS protocols. I don’t think they are a great solution. They’re likely fine for L2s, but not suitable for non-State L1 money, imho
“More power you have over the network itself”. Also, not true. There is certainly a rich-getting-richer dynamic in Ethereum’s POS, but that is not giving “more power over the network”. Certain other POS chains (and DAOs) have on-chain governance, where decision making is done with coin votes (or with delegates). Polkadot is one such example, where protocol changes are voted on-chain and automatically activated. Cardano too, I think.
That is horrible, IMHO. You lose the “division of powers” dynamic in Bitcoin (and ETC) between users/holders, miners and developers. Whales can force protocol changes. That cannot directly happen in Ethereum POS. Sure, you can have soft power and persuasion and so on, but ultimately you need to persuade developers to make the changes and then end-users to voluntarily update their nodes to accept those changes.
Ethereum POS centralizes the wealth, but whales do not intrinsically have any more power than other with regards to the protocol. Not anymore than any rich people have the ability to steer results anyway (which is too much!)
“Technically be the defacto central authority” … no
“That would an accurate description of how Ethereum launched” … no, it wouldn’t.
Also, Ethereum launched nearly ten years ago. Lots has changed in the whole of the cryptocurrency ecosystem over that period. Funds have been bought and sold numerous times over. The number of whales who have HODL-ed for ten years will be close to zero, I am sure. Ethereum, given its market cap and liquidity, has been traded to such an extent that the original distributions are not likely representative any more. I recall Vitalik saying at some point recently that he had less than 0.5% of ETH and had never had more than 1% at any point. If he’s rich it’s because Ethereum delivered in spades. His degree of control over Ethereum is always overstated. From the earliest days there were like 30-40 people who were very active on delivering from within the group which became the EF, and later hundreds and thousands and tens of thousands of other project teams building on Ethereum.
“Ethereum is confusing”. Yes, it is, and that is sad.
“Does not want to be money”. Correct. Though some people have tried to make that a thing with “Ultrasound money” meme.
“Does not want to be a software platform either, because it is slower and less efficient than more centralized services” So that is dead wrong. Absolutely 180 degrees off. Ethereum absolutely wants to be that. It’s the whole point. And yes, it is much slower and less efficient, and that is the intentional tradeoff versus AWS, or even compared to Solana or whatever. It’s just like Bitcoin’s decentralization/throughput tradeoff. It’s easy to say “this is slower so it is useful”. Well, d’uh. Of course coming to global consensus on some compute is slower than any centralized service. And yeah, the UX will suck, but the tradeoff is that you have censorship resistance.
That value prop for Ethereum was obviously weakened by the DAO Fork, and is weaker for POS, but it’s still a major value for Ethereum. Better than the VC chains with their vanity metrics.
I would argue that ETC is stronger again on this score, following the Bitcoin pattern very closely, with POW and smart contracts and a history of non-intervention.
“Hasn’t achieved decentralization either” showing the number of nodes running on AWS. That issue is sadly the case for most blockchains. Sad number of people running their own nodes and sad number of the ones who are, doing so on rented hardware. But decentralization is many faceted, and it’s easy to shoot holes in other things too – like mining pool decentralization, use of non-custodial wallets (especially Lightning) and on and on.
“Not sure what Ethereum is at this point” I’ve felt the same too myself, and felt sad about that, because there was a much clearer vision in 2014/2015 but I guess that happens in many projects as they get more mature and mainstream and lose some of their rebel essence. See Bitcoin ETF cheering, for another example. Fuck the regulators and fuck paper Bitcoin.
“Make Ethereum Cypherpunk Again” … so yeah, he’s not wrong in that, though I would argue it happened many years ago and has got worse and worse. I don’t think that ship can be course-corrected. Ethereum is a more merge-with-the-mainstream project than it is non-State money.
“What has Ethereum accomplished? Well it’s made Vitalik extremely rich” – again, this is a cheap attack, implying that was the goal. What Ethereum has actually accomplished is to enable everything which Bitcoin itself could not do, due to its lack of programmability. And did people build scams and waste people’s time with bullshit? Absolutely, but that is the nature of truly censorship resistant platforms. People can do anything and you cannot stop them. That is the nature of the beast. So don’t participate in anything which you don’t see value in.
I always find it odd that people who claim to be about human freedom, libertarian values, cypherpunk origins, etc, would seek to constrain other people’s choices when they don’t agree with the other people’s opinions or preferences. In that case, for example, popping up a bunch of headlines about scams seems to imply that the answer is more regulation, or …. I don’t know, what? Arresting Vitalik? Banning Ethereum?
99.999% of cryptos are worse off than holding Bitcoin. Maybe true, but that was their choice. All asset holders on the planet over the last 15 years holding traditional assets are maybe worse off than if they held Bitcoin. Should those be banned too?
“Can it be a world computer and do we even need that?” – well, it’s an experiment, isn’t it, just as Bitcoin is an experiment and everything which humans do is an experiment. We don’t know what the outcome of any of these projects will be, but we are all our trying our best to build things which make things “better”, in whatever our own frames of reference are. Any of these things might fail, and Bitcoin is not unique in that.
Bitcoin is money, yes.
Ethereum is not money, no, it’s an application platform.
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