Bullish CEO talks to Gavin Wood: Why is everyone constantly buying BTC?

Dr. Gavin Wood had a conversation with Tom Farley, CEO of Bullish, yesterday! They talked about some interesting topics! The video is quite long, and we will release it in two parts. This article is the first part, check out the wonderful insights organized by PolkaWorld!

Too Long Didn’t Read Version

• I am not very willing to call JAM an intelligent contract chain. Because JAM can not only fully execute the functions of Polkadot, such as protecting the blockchain, but also can do more things.
• We will not launch the JAM protocol until version 1.0 is completed. I hope the JAM protocol can be launched next summer.
• Regardless of the rules used to determine which blockchains will ultimately survive, BTC and Ethereum are not exempt from these rules. BTC may be an exception, and I don’t believe that BTC developers have the intention to develop this technology beyond the scope originally envisioned by Satoshi Nakamoto, or even reach the level initially envisioned by Satoshi Nakamoto.
• BTC is more like a buying behavior. Its value mainly comes from two aspects: first, it is constrained by Consensus, and second, there are already enough people or value entering this constraint system.
• I don’t think people have irreversibly accepted the trap rules offered by Ethereum. I believe Ethereum still relies mainly on its technical foundation and the services it provides as a Smart Contract platform to compete.
• I didn’t try to make Polkadot an incremental version because it would not be wise and wouldn’t be of much help. With Polkadot, what I really want to do is try something completely new and push the further development of technology.
• I believe that JAM is a fundamental improvement over the Smart Contract model.
• Truly valuable community members are those who think clearly, focus on development and innovation, and stay not because of loyalty to some random icon, but because they truly believe in this community and can gain and contribute value here.
• Some people are indeed so-called ‘extremists’, but if you want to promote meaningful change, you don’t want your ecosystem to be filled with such extremists unless you are establishing a religion.
• Integrating various chains, if it can be done without significant technical compromises and without requiring people with existing skills to learn new ones, then from a business and economic perspective, this is very reasonable. However, whether it is appropriate to only retain a few global tokens is a completely different question.
• Is it necessary to indefinitely retain all of these Layer 1 blockchains? Perhaps not. In the end, we may gradually converge around certain specific trade-offs and form a few major blockchains. However, if we’re talking about major innovations, the situation is different. I think the market does need to offer different investment choices, as well as opportunities to hold stakes in blockchain protocols that are truly attempting to drive revolutionary innovation. Unfortunately, I realized that Token has become a tool for massive speculation, not just an encryption economic measure we talked about in 2014 to prevent transaction spam. It seriously pollutes the market.
• There is a large amount of “dumb money” wanting to buy assets that they can quickly sell, which is essentially a judgment of how many people will buy before I sell and where I stand in this market wave. In this case, no one is willing to build long-term projects that can bring value to the world in the next 10 years.

Keep reading to see all the exciting conversations curated by PolkaWorld!

JAM occupies most of Gavin’s time

Tom: Hello, I’m Tom Farley, the CEO of Bullish. Bullish’s flagship media business is CoinDesk. Welcome to the second episode of the CoinDesk Spotlight podcast. I’m delighted to have Gavin Wood as our guest today.

In my career, I have had the privilege of interviewing many remarkable individuals. Today, I am very excited and a little nervous because this is the first time I have met Gavin. I have always been his fan and am very grateful for everything he has done for the digital asset field. He needs no introduction as the founder of Ethereum, CEO of Parity, and creator of Polkadot. Now he is doing some very cool things. Gavin can be said to have greatly helped lay the foundation for our industry, and I am very much looking forward to hearing him talk about the current state of cryptocurrency, digital assets, and blockchain technology, as well as other topics I hope to discuss in this podcast.

Gavin, thank you very much for joining our interview.

Gavin: Hello Tom, thank you for inviting me!

Tom: I have a lot of questions I want to discuss with you, but let’s start by talking about what you’ve been up to recently. We all know about your history with Ethereum and, of course, your history of creating Polkadot, but many listeners might be curious about what you’re currently working on.

Gavin: Currently, most of my time is spent on developing and improving the next version of the Polkadot protocol, the so-called JAM project. Although there isn’t much time left, I am also thinking about the issue of civil resistance facing our entire Web3 industry.

Tom: Then we can talk about JAM. I have read the “Gray Book” of JAM, but I am not a genius in the field of blockchain technology, so I did not fully understand the content of this document. In my opinion, it is like what you just described, the next version of Polkadot, which not only draws on the principles and concepts of Polkadot, but also includes some Ethereum concepts, as well as some new ideas that you originally created for this project.

Gavin: Yes, to some extent, JAM can indeed be regarded as a hybrid protocol. Ethereum is a typical smart contract blockchain, while Polkadot’s primary design goal is to protect other blockchains. JAM utilizes some complex encryption and economic mechanisms underlying Polkadot, but its goal is to provide a more general environment, similar to a smart contract environment. However, for some reasons, I am not willing to call it a smart contract chain. Because JAM can not only fully execute Polkadot’s functions, such as protecting blockchains, but also can do more. The significance of JAM’s existence lies in its versatility and the ability to accomplish various tasks using Polkadot’s underlying mechanism.

Tom: Can I think of JAM as Layer 2 or Layer 1.5 on Polkadot? When I was reading the whitepaper, I found that parachain is an innovation of Polkadot, which many people are interested in. And a part of JAM seems to allow the existence of parachains while also creating a way to reintegrate them to avoid some potential drawbacks during their initial creation. Can I simply understand it as Layer 2 or Layer 1.5?

Gavin: It’s a bit strange to discuss Polkadot using the concept of ‘layers’.

Tom: Yes, I also find it difficult to understand these Layers. I even hesitate whether to use this term because I heard you mention that Polkadot is Layer 0. To be honest, I am not sure what Layer 0 really is.

Gavin: We propose the concept of Layer 0 based on the idea that if the underlying smart contract blockchain (such as Ethereum) is considered Layer 1, then Polkadot, as the network that supports these blockchains, can be regarded as the layer that supports them, which is Layer 0. However, if we redefine it and consider Polkadot as the layer that protects the blockchains (Layer 1), then in a sense, JAM is below it because JAM is responsible for providing services to protect these blockchains. So, JAM still exists in the lower layer of the blockchain, but JAM can not only support blockchains but also other functions - not just the mechanism for protecting blockchains.

So, we define JAM as Layer 1, then the Smart Contracts or services running on JAM (not necessarily specifically Smart Contracts) can temporarily be referred to as Layer 1 services. The blockchains protected by the blockchain protection services provided by JAM (similar to Polkadot’s parachain) will be considered as Layer 2. What Polkadot is currently doing can be seen in some sense as Layer 1.5 on top of JAM (i.e., an intermediate level between Layer 1 and Layer 2), because JAM itself can provide more general functions, and some functions of Polkadot run on top of JAM. Therefore, if we call the Smart Contracts running on the ETH network Layer 1.5, we can also refer to the services running on JAM as Layer 1.5, and consider the parachain itself as Layer 2. So if you want to consider these concepts from the perspective of layers, this classification might be easier to understand.

Current Progress of JAM

Tom: This is really helpful! So, what stage is JAM at now?

Gavin: The current version of the gray paper is 0.3.5, which means that about half of it has been completed. There is still a long way to go from the initial version 0.1 to version 1.0. We must wait until version 1.0 is completed before launching this protocol. I still hope to follow the same timeline as the yellow paper of Ethereum. The yellow paper was released in April 2014, and the final network of Ethereum went live around June or July 2015. Therefore, the gray paper was initially released in April 2024, and I hope that JAM protocol can be launched next summer. However, of course, there are always uncertainties in software development and protocol development, so this timeline is a target, not a fixed commitment.

Tom: I totally understand. I heard children’s voices in the background, and there’s no doubt that they will delay the software development progress. So, I think taking care of the kids may be the biggest challenge for you to finish all the code writing. Hahaha~

Gavin: This is indeed a challenge, hahaha~

How to stand out in L1?

Tom: I like to pretend to be a ‘native’ in the digital asset field, but I can never completely get rid of my roots in TradFi (Traditional Finance). I often apply my decades of experience and analogies in the TradFi field to the digital asset field. When it comes to Layer 1, I see a lot of discussions, although I don’t fully understand all the details, but I hope to have a deeper understanding. Currently, there are dozens of Layer 1 blockchains with active developer communities. I hear people discussing the advantages and disadvantages of these Layer 1s, such as ETH (Ether) being the first, Solana being cheap and having good scalability, Tron being inexpensive, and so on. We can continue to list many examples.

In my opinion, the most critical resource is the developers who are building innovative projects on these on-chain Blocks. So my question is, has the number of Layer 1s now reached a point where negative effects are being generated?

We can discuss why the new Layer 1 is still receiving funding support and why the developer community is so persistent in these projects. I have many questions about this.

But the question is, do we already have too many Layer 1s? If so, what do you think would be the appropriate number of Layer 1s in the end?

This reminds me of the TradFi field, such as how many futures exchanges does the world really need? How many photo sharing apps on social media are needed? How many backbone networks does the internet need?

So, how many Layer 1s do you think we will eventually need? In your opinion, what factors will make the ‘winners’ stand out? Is it the technical specifications of these Layer 1s, such as centralization, block size, and security, or are there other factors that can make non-Ethereum Layer 1s come out on top?

Gavin: First of all, what I want to say is that Ethereum and Bitcoin are not particularly exceptional. Regardless of the rules used to determine which blockchains will ultimately survive, they are not beyond these rules. BTC may be an exception because it is the first cryptocurrency, and it is not essentially a blockchain technology, but a cryptocurrency supported by blockchain technology. However, I don’t think that BTC’s developers are willing to develop this technology beyond the scope initially envisioned by Satoshi Nakamoto, and it may not even reach the level initially envisioned by Satoshi Nakamoto. BTC is more like an ultimate means of value storage, although in the future it may also become a means of payment, but I understand your point.

Indeed, BTC seems more like a buying behavior, and its value mainly comes from two aspects: one is constrained by Consensus, and the other is that a sufficient number of people or value has entered this constraint system. In a sense, these constraints themselves are the service provided by BTC. Anyway, I think BTC may be an exception, but I don’t think other blockchains have similar exceptions.

I don’t think people have irreversibly accepted the trap rules offered by the Ethereum platform. I believe Ethereum still primarily relies on its technical foundation and the services it provides as a Smart Contract platform to compete. From this perspective, you could also say its community is a factor. I think much of Ethereum’s value comes from many people identifying with it, although they may not necessarily use Ethereum’s services. But the community is not particularly sticky, it does not have the same persistence as financial investments.

Okay, so where do I think Layer 1 will ultimately compete? Part of it is the community, and part of it is service providers.

I believe that in terms of service provision, this is not just about progressive improvement. That’s why I didn’t try to make Polkadot a gradually improved version, because I don’t think it’s wise or very helpful. Through Polkadot, what I really want to do is try some new things and push the development of technology further.

In this environment, we can host programs like financial applications, voting applications, and governance applications, where participants, although they don’t trust each other, can still process a large amount of value. And, as I said, we can achieve this with software on regular machines, without dealing with gas, blocks, or restrictions such as auctions and gas prices.

I think this is a fundamental improvement over the Smart Contract model.

Do developers and users have no loyalty?

Tom: You mentioned earlier that the community does not have strong stickiness, but I feel that in the field of digital assets, the community is almost very stubborn and strongly sticky. For example, if you look at the developer community of Solana, they are like marching around with the Solana flag, very tribal. I think part of the reason is that developers are reluctant to move to other platforms because of their investment in a certain programming language. Some developers use Solidity, some use Rust, C++, C, Python, and there are also some programming languages that I have never heard of. So do you think this is correct? Is the community really not sticky?

Gavin: I believe there are indeed some very loyal people in the community, like standard bearers. But are these people really valuable to the community? I think the value of standard bearers is actually limited. As you mentioned before, the truly valuable community members are those who think clearly, focus on development and innovation. They stay not because of loyalty to a random icon, but because they truly believe in and contribute value to the community. Therefore, the value of the ETH community does not lie in having many loyal ‘standard bearers’. If you delve into the ETH community, attend the ECC conference I attended before (held in Brussels this year), or another event related to Vitalik, you will find that the people I interacted with are not the kind who ‘hold their ground’ just to stay in their own ecosystem. People are interested in technology, they join the ETH community because of its technology, leaders, and vibrant discussions, not because they have some kind of emotional attachment to ETH. If they find these characteristics in another community, they will not hesitate to move there. They choose to stay in the ETH community because ETH is doing the right thing, not because they are ‘married’ to an idol.

Of course, I agree that some people are indeed so-called “extremists,” but if you want to promote meaningful change, you don’t want your ecosystem to be filled with such extremists unless you are building a religion. If you want to achieve useful change, what you need are innovators - those who are willing to think and solve problems in different ways, who can truly develop something new without being bound by a fixed mindset.

Does the encryption market really need so many L1s?

Tom: I really like this perspective. If you can build a better Layer 1, it will attract developers, even if they need to migrate from other Layer 1s and even need to learn a new programming language. If this Layer 1 is good enough - as you said before, not incremental improvement, but a leap forward - then you will attract a community. Okay, assuming this is correct, it makes sense to me.

On the other hand, I think we can all agree that having a Layer 1 with more than 30 developer communities is indeed a massive number. Over the next 10 years, what we really hope to see in the digital asset space is more and more application scenarios, possibly more focused on the use cases of Programmability in finance (this is my opinion, not necessarily the same as yours, please correct me if you have different opinions). These applications will benefit from secure and transparent blockchain transactions, and will involve a large number of non-developer users. But if there are 30 blockchains, the user experience will be very different, which may be confusing and limit the popularity of blockchain. Again, this is just my point of view, not a summary of what you said. What I mean is that such diversity may hinder the widespread adoption of blockchain. I am not a fervent supporter of Ether, and look at the Layer 2 on Ether, the user experience is really bad, at least for me, many things are not very good. So I don’t think Ether has solved this problem.

If these use cases are scattered across different on-chain blocks, users have to perform one operation here and another operation there, which I believe would hinder the development of the entire industry. Ideally, we should see fast integration and the formation of a few successful Layer 1 blockchains, with a very limited number. Similar to the futures industry in the internet, transaction settlement typically relies on one or two, or even three platforms, in order to promote adoption and make it easier for more people around the world to enjoy these technological advancements. What do you think? I know I sound a bit like giving a lecture, but I really want to know your thoughts.

Gavin: Integration is indeed an interesting concept, and it makes sense to some extent. This is also why Polkadot has an idea called Plaza. The main idea is to try to introduce a unified Smart Contract environment, or a default Smart Contract environment, to support Solidity and EVM bytecode within the Polkadot ecosystem. This concept is currently causing some attention, and I think it’s reasonable. Many people in the Polkadot ecosystem also think it makes sense, and many people agree with it.

If integration can be done without significant technological compromises and without requiring people with existing skills to learn new ones, then from a business and economic perspective, this is very reasonable.

However, whether it is appropriate to only retain a few global Tokens is a completely different issue.

It’s like saying that the current stock market, such as the FTSE 100 or the S&P 500, is combined into a set of proportions based on the current Market Cap, and then it is stipulated that it can only be traded in three different combinations of companies. For example, if you want to invest in technology stocks, you can only buy stocks in this portfolio if you want to invest in technology stocks.

This will make investors’ lives easier, especially for those investors who are unwilling to delve into the future 25-year strategic value of individual companies, such as pension fund managers, who typically only hope that the market can self-adjust and choose the index with the lowest risk.

However, the problem is that this approach completely kills the possibility that Microsoft may be better than Apple in innovation, such as in the innovation of artificial intelligence. Is this idea good? I think we would all agree that this is a very bad idea.

While doing so can indeed make investors, especially those who wish to make low-risk investments, live a simpler life, from the perspective of the Blockchain, we are still undergoing significant innovation. Therefore, it is not advisable to imagine the Blockchain industry as a static market.

Of course, I have no doubt that you can point out that among these 30 Layer 1s, there may be 20 that have not undergone particularly significant innovations, but have only undergone incremental optimizations or made different trade-offs between centralization and performance, which is only a slight difference on the spectrum of trade-offs.

Is it necessary to indefinitely retain all these Layer 1 blockchains? It may not be necessary. Ultimately, we may gradually converge around some specific trade-offs to form a few major blockchains. But if we are talking about significant innovation, the situation is different. I think the market does need to provide different investment options, as well as opportunities to hold stakes in blockchains that are truly trying to drive the next revolutionary innovation.

Tom: I really like your answer and completely agree with your point of view. Although I think there are indeed too many Layer 1s in the industry, which has caused some obstacles to our rise, on the other hand, I am a supporter of a free market. If the market is willing to invest a high valuation of 5 billion US dollars for the 33rd Layer 1, then what reason do we have to stop it? So this makes me start thinking about this issue. It sounds a bit like complaining, but in reality, there is only one Gavin Wood at the moment. He walks into an investment firm and says he wants to launch a new Layer 1, and sincerely believes it could be the number one or number two project, which is a trillion-dollar idea. Although the possibility of realization is minimal, there is indeed a possibility, so I understand why it receives funding support.

However, this also makes me wonder why so many Layer 1s are able to get financing? In my opinion, the net present value of future cash flows for these new Layer 1s is likely to be close to zero, but they are still able to receive financing support. I think this phenomenon may gradually cool down. We see that many new Layer 1s have only 3% of token circulation when they are launched, but their initial valuations are exceptionally high, attracting a large number of followers. Therefore, the initial investors believe that the value of the token will pump significantly, and they do not conduct traditional evaluations, that is, whether the project can really disrupt the industry and change the world. This is the real issue we should consider, because it is very difficult to surpass ETH, BTC, and even Solana. I think there are some structural problems here, but I hope to see only those truly excellent and rational business ideas get funding support in the future.

Gavin: I’m not sure, but I hope so. However, I’m not very optimistic. I realized that Tokens are not just an encryption economic means we talked about in 2014 to avoid trading spam, but have become a tool for people to engage in large-scale dubo. This is unfortunate because it seriously pollutes the market and turns it into a speculative tool - basically a means of dubo. As you mentioned, this also pollutes the underlying capital and theory. The problem is no longer whether we can sell what we are creating to rational people, to those who will carefully study whether it is valuable to society. Although I don’t think IPOs are particularly ideal, they are at least better than many existing ways, especially compared to trading on regular exchanges.

There is a large amount of ‘dumb money’ wanting to buy assets that they can sell quickly and make a profit in one hour, one day, or one month. This is basically a judgment of how many people will buy before I sell and where I stand in this market wave. In this case, no one is willing to build long-term projects that will bring value to the world in the next 10 years. Since it can be sold to those who will eventually sell it to others, why bother to build it? They will just keep speculating on it. This is a theory of mine, and I don’t have economic data to support this view, but I think this is why we see a large amount of capital flowing into L1 projects, which, to be honest, may not have much future and greatly pollute the market.

Original video:

Compile: PolkaWorld