Ethereum founder on U.S. crypto crackdown

PRAGUE — For Vitalik Buterin, the idea of home is fleeting.

The Russia-born coder, who built ethereum in his late teens, doesn’t stay long in any one city anymore. Meanwhile, the list of places he won’t go keeps growing.

“There’s definitely a bunch of countries that I would have very gladly visited three years ago, that I’m much, much more apprehensive about visiting today,” Buterin told CNBC in an interview in the Czech Republic.

Buterin singled out his homeland of Russia as one of the destinations he now avoids. The Canadian emigre has both Ukrainian and Russian roots but has actively supported the resistance movement in Ukraine. Buterin has also become a target for governments looking to crack down on crypto and its developers, making him a pseudo-outlaw in certain global jurisdictions.

“Even in countries that the mainstream considers to still be fairly normal places — I definitely worry about those more,” he added.

The creators behind the open-source protocol Tornado Cash, for example, face charges in both the Netherlands and the U.S.

Tornado Cash is used by some people to protect their privacy in the still-nascent crypto market, but a mixing service can also be used by criminals or nation-states to launder money. Many in the industry worry that targeting the developers who build a tool, instead of just the bad actors using that tool, sets a dangerous precedent.

The decentralized lifestyle suits Buterin, a 29-year-old programmer whose influence in the crypto sector transcends lines of code — or geography. Prague is one new center of gravity where he now finds refuge with like-minded programmers collectively looking to change the world through cryptography-powered technology.

We met in a sparsely furnished room at the top of a sprawling industrial complex in the Holešovice district, a neighborhood once synonymous with slaughterhouses and steam mills, that’s now home to Bohemian artists and some of crypto’s most rebellious believers. The interior of this deceptively nondescript structure is a honeycomb of labyrinthine corridors and winding staircases that snake into its fortress-like belly, echoing the complexity of crypto to the unfamiliar.

Today, the biggest challenge for Buterin and the ethereum community is making sure that it provides actual value to people.

“The way that I see the ethereum ecosystem in general is that the last decade was the decade of kind of playing around and getting ethereum right. This decade is the decade where we have to actually build things that people use,” says Buterin, hands clasped, as he leans forward from his perch on an ergonomic-friendly kneeling chair.

He is arguably the most influential cryptographic developer alive today, but Buterin wasn’t trying to step into the limelight when he wrote the ethereum white paper in 2013. Still, years after shunning public accolades and demurring countless invitations to speak to the press, he can’t shake the fame — or the superlatives used to describe him.

Buterin was named the world’s youngest crypto billionaire at age 27 as the crypto market swelled to its peak in 2021. They call him “V God” in China, Time magazine dubbed Buterin crypto royalty in its April 2022 cover story, and he faces mobs of fans desperate for a moment of his attention — and a selfie — virtually anywhere he goes on the planet.

But Buterin isn’t really any of those things.

He isn’t the prince of crypto. He isn’t a cult leader of new gen cypherpunks. He isn’t the wonkiest wonk, or the nerdiest nerd. He regularly gives away his fortune to worthy causes, knocking down his net worth. And he isn’t, according to his own estimation, the be-all and end-all authority on the ethereum network.

He is, however, someone who cares deeply about realizing his vision of a world where, among other things, humans have equitable access to money no matter who they are or where they live.

Buterin finds that cryptocurrencies realize their greatest utility in emerging economies — a phenomenon that has gained momentum in recent years.

“The stuff that we often find a bit basic and boring is exactly the stuff that brings lots of value to them right now, like making payments work, and savings,” Buterin said of lower-income countries.

“Just being able to plug into the international economy. These are things that they don’t have, and these are things that provide huge value for people there,” Buterin told CNBC. “It’s hard to even be interested in really abstract stuff like decentralized social media, when you don’t really have those kinds of basics done.”

As U.S. investigators pressed criminal charges against the likes of Sam Bankman-Fried and federal regulators such as the Securities and Exchange Commission began cracking down on what they called the trade of unregistered securities, the action in crypto began to move overseas.

Whereas investors in the U.S. tend to treat crypto as more of a get-rich-quick opportunity and a way to trade on volatility in a less-regulated market than traditional securities, Buterin typically gravitates to developing markets around the world, including Africa in February, where he sees tangible, day-to-day use cases for the technology he helped to build.

“When I visited Argentina back at the end of 2021, lots of people use crypto, lots of people love crypto,” he said. “I literally got recognized on the streets of Buenos Aires more often than I got recognized in San Francisco.”

But for crypto to become truly useful on a global scale, Buterin told CNBC it ultimately has to move out of centralized entities like custodial trading platforms and that it must be simpler to use.

“I found coffee shops without even looking for them that just happened to accept bitcoin and ether — but the problem is, they were all using Binance,” said Buterin.

While he appreciates centralized exchanges like Binance for offering a smoother user experience to non-technical people living in countries where the average GDP is less than $10,000 per capita, he believes that ultimately, the sector has to become more decentralized.

He continues, “Those centralized actors are vulnerable to, you know, both pressure from the outside and to themselves being corrupted.”

Last year, a wave of bankruptcies in the crypto sector exposed grift throughout the industry.

A lot of people got rich before the increase in interest rates and subsequent collapse of Luna in May 2022 set off a chain reaction that sent the entire market tumbling down, spurring a crypto winter that persists to this day. The ex-CEO of the bankrupt crypto exchange FTX, for example, faces criminal charges alleging that he promulgated a multibillion dollar fraud scheme, while Binance, the world’s largest crypto exchange by trading volume, is being sued by both the SEC and CFTC over a raft of accusations, including the assertion that Binance commingled billions of dollars worth of user funds with its own money.

Instead of placing blind trust in a central intermediary to act in the best interest of the customer, Buterin believes the ideal solution comes down to writing better code so that users can deal directly on-chain.

“We need the experience on chain to actually be good for regular people to use,” Buterin explains.

“We need it to actually be possible to do ethereum payments in a way where the transaction fee is less than five cents a transaction; in a way where the experience doesn’t suck and randomly fail 2.3% of the time; in such a way that you need a PhD in ethereum sciences to actually figure out what’s going on,” he said.

Privacy and security are also key priorities.

“People need to have wallets that are actually secure, where if they lose the keys, they’re not going to lose everything,” Buterin added.

A national digital currency could present the ease of use he envisions, but he believes that decentralization is also critical, otherwise they’ll devolve into another version of the existing banking system — only with more surveillance built in.

“That was a space where I think I had somewhat more hope, probably, naively, five years ago, because there were a lot of people who wanted to do things like make them blockchain friendly, give actual transparency and verifiability guarantees, and some kind of level of actual privacy,” explained Buterin of central bank digital currencies.

CBDCs are a type of blockchain-based virtual currency that is fully regulated and has the backing of a country’s central bank. The People’s Bank of China, which is arguably the leader in CBDCs thus far, has been piloting its take on a CBDC for almost a decade. As of June, transactions using the digital yuan, or e-yuan, hit nearly $250 billion. But as they catch on, many have raised concerns about financial surveillance and monitoring tools which can be baked into these government-issued digital currencies.

“As each and every one of those projects come to a certain maturity,” Buterin says, the privacy-preserving bits “all sort of fall away as the thing comes closer and closer to being a 1.0. We get systems that are not actually much better than existing payment systems, because they just basically end up being different front-ends for the existing banking system.”

He continues, “They end up being even less private and basically break down all of the existing barriers against both corporations and the government at the same time.”

Vitalik’s father, Dmitry, introduced him to bitcoin in 2011.

Both Vitalik and Dmitry Buterin, a computer scientist who had lived outside Moscow, were intrigued by the idea of a decentralized currency that operated outside the reach of governments or central banks. But Vitalik was keen to advance this new kind of decentralized ledger technology so that it could be put to greater use.

What ultimately put him on the map was baking smart contracts — a programmable piece of code that aims to replace middlemen like banks and lawyers in certain types of business transactions — into the blockchain. It was a game-changing innovation for the sector that led to an explosion of projects and initial coin offerings (ICOs) built on ethereum.

Today, the network serves as the primary building block for all sorts of crypto projects, like non-fungible tokens (NFTs), decentralized finance (DeFi), and web3, a still somewhat amorphous buzzword for a third generation of the internet that is decentralized and built using blockchain tech. Meanwhile, ethereum’s native token, ether, is the world’s second-biggest cryptocurrency by market cap after bitcoin.

In ethereum circles, hackers are known as BUIDLers — an intentional misspelling of the word ‘builders’ in a sort of homage to the bitcoin meme, HODL, or “hold on for dear life.” The meme-off may seem silly, but it gets at the core of what separates these two very different sets of people.

Bitcoiners tend to move more slowly on development, prioritizing security and decentralization above all else, while ethereum programmers tend to be more cavalier. While they aren’t necessarily breaking things as they go, they do move fast and tinker aggressively.

Last year, for example, the ethereum network fundamentally altered the way the blockchain secures its networks and verifies transactions, slashing its energy consumption by more than 99% in the process. Before this upgrade, both the bitcoin and ethereum blockchains had their own vast networks of miners all over the planet running highly specialized computers that crunched math equations in order to validate transactions. Proof-of-work uses a lot of energy, and it is one of the industry’s biggest targets for criticism.

But with the upgrade, ethereum migrated to a system known as proof-of-stake, which swaps out miners for validators. Instead of running large banks of computers, validators leverage their existing cache of ether as a means to verify transactions and mint new tokens. 

Buterin insists that ethereum’s move to a proof-of-stake model is more likely to stand up against government intervention.

“Proof-of-stake is actually easier to anonymize and harder to shut down than proof-of-work is,” he says. “Proof-of-work requires huge amounts of physical equipment and requires huge amounts of electricity. These are exactly the kinds of things that drug enforcement agencies have decades of experience detecting.”

About the ethereum network, he says, “On the other hand, you’ve got your laptop. You just need a VPN somewhere, and you hide it in a corner. It’s not perfect, but it’s definitely much easier to hide.”

In previous appearances in Denver and Paris, Buterin’s stage presence was colored with a subtle unease. But one-on-one in Prague, he really came alive, dropping the tics and effortlessly swapping the role of elusive coder for open-minded educator.

His transparent communication style, coupled with his willingness to engage in profound philosophical discussions around concepts like quadratic funding (a way to crowd-raise a central crypto treasury that is then used to fund public goods projects in ethereum — all with the help of an algorithm designed to optimize spending decisions) and soulbound digital identities on the blockchain, have turned him into a trusted thought leader within the crypto community.

Notably, Buterin is also very willing to field any question posed to him — especially those that address critiques of the network and of the scope of his leadership position today.

Take the example of his own outsized role in the cryptocurrency he created. Unlike the pseudonymous and hidden Satoshi Nakamoto, who created bitcoin, Buterin is very much the face of ethereum.

Some see this as a significant point of weakness for the network, because governments could target either Buterin or the Ethereum Foundation. But Buterin rejects those contentions, saying that ethereum has become its own self-governing ecosystem, with no single point of failure.

“Even if the Foundation got some magic freezing order in every jurisdiction at the same time, and if something happened to me at the same time, there’s entire companies that are sole maintainers of ethereum clients, that would totally be able to continue,” explained Buterin.

Five years ago, Buterin says, a lot more was dependent on him personally and on the Ethereum Foundation, but today, clients — that is, software applications built on top of the blockchain that operate independently — have taken on a lot of the work that happens today.

They call it the philosophy of subtraction.

He explains, “I think one of the ways of describing its aim is basically that the Ethereum Foundation isn’t trying to kind of be a zealot, a long-term operator or dominator, or anything like that. The goal of the Ethereum Foundation is to foster things that, once they start, can continue in a way that’s totally independent.”

In terms of what’s next for ethereum — Buterin says a big priority is focusing on privacy and scalability through zero-knowledge rollups.

ZK-rollups are transactions bundled into sets and executed off-chain. This layer-two technology plays a major role in future upgrades that will ultimately help to make ethereum faster and cheaper to use.

“There’s definitely an extent to which there are diverging interests and there is the extent to which I think the ecosystem does need to find a way to fight hard for the right to continue to build things with the kinds of privacy that we’ve been used to for thousands of years,” Buterin said.