Vitalik Buterin’s Latest Speech at 2018 Global Blockchain Summit in Shanghai

Vitalik Buterin:

The topic I want to share with you today is: blockchain and its mechanism design. The existence of the mechanism has been around for a long time, and more and more people are interested in how the blockchain is combined with the mechanism. There are many examples of blockchain and mechanism combinations, such as voting, auctions, markets, trading platforms (decentralized trading platforms), ENS domain name services on Ethereum and so on.

We know that the market has existed for many years, but how to build a better mechanism for the market and make the mechanism has better characteristics?
For example, the use of mechanisms to distribute goods, the production and manufacture of public goods, stimulation and punishment, achievement of social fairness, coordination of people’s behavior and so on. Recently, more and more people are interested in the concept of “how to adopt mechanism design theory in our society”. Here is a book called Radical Markets, it is about how to achieve social fairness and justice.

So first let’s take a look at the new solutions to the following market activities: for example, the use of free radical resource allocation mechanisms to achieve different distribution of different people’s contributions. Other examples such as quadratic voting, Haberg tax and frequent auctions.

Financial markets also have these problems, because the financial market is centralized. Different participants will send or cancel orders, therefore many problems will be occured. We hope that this new mechanism will reduce the cancellation of orders. Currently, millions of dollars are wasted every year because of the current mechanism. This new solution can reduce waste and make auctions more efficient.

So how does the blockchain help solving this problem, namely: the problem of solving the credibility of the mechanism?

The current mechanism is centralized and inefficient, the middle party may cheat or deceive, which may generate trust crisis. What’s more, the current mechanism has a central server. It is very likely to deceive, and when fraud occurs, outsiders do not know if fraud has occurred.

The short-term blockchain application focuses on three aspects:
1. Decentralized exchanges
2. Public goods in blockchain ecosystem (community resources, file financing, etc.)
3. Sales of virtual real estate (such as DApp interface advertising, etc.)

In the past 3 years, everyone has paid a lot of attention to ICO. I think it was too much. Meanwhile we can devote more time to think about other ways using the blockchain technology. In applications mentioned before, the mechanism can help us increase sales and drive the enthusiasm of the community. All of these problems are the feasibility of the mechanism. The centralization mechanism is to trust third parties, but we all do not want to trust third parties, right?

So what challenges do blockchain face today?

The first is the operation of miners and verifiers. Cosmos has this problem, and Ethereum also has it. For example, most of the ICO in the past were zero-sum games, and users had to pay huge transaction fees. We find that a lot of money is wasted, but we know that the purpose of the blockchain is to make the world more efficient, not waste resources.

How to solve this problem?

The problem can be solved by batching and high frequency trading. The blockchain can accept large-volume transactions at the same time and process them in order. If one of them has malicious behavior, the others can still work normally.

Second challenge is privacy. The user submitted a lot of information, but the blockchain itself has no privacy features.

Corresponding solution is a mechanism for submission/disclosure. If only short-term privacy is required, the participant is asked to submit a hash of the transaction and then ask all participants to reveal it. Through VDF or threshold decryption, “revelation” can be completely automatic.

Zero-knowledge proof is another solution to this problem.

Third challenge is the anti-Sybil attack. A quadratic vote requires only one account per participant. If a participant has many accounts, he can easily get “unfair” higher returns.

Then it has the following two solutions: centralized authentication and “social verification”.

Another challenge is complicity. For example, in many voting mechanisms, it is possible to “bribe” participants to make the voting unfair. Preventing such an attack requires not letting anyone show or prove to others how to vote. If you don’t know who voted, the mechanism of bribery may not exist. But this is hard, and it may be harder on the blockchain.

The solution is MPC, which means that all participants cannot see the confidential information and calculation process except the final voting result.

It is worth noting that trusted hardware is very important, and recently there are many hardware attacks that tend to be solved by MPC.

However, in the process of the entire design mechanism, simplicity is the most important! The technical basis and security assumptions of the mechanism should be made as simple as possible, and simpler solutions are easier to deploy. Finally, more and more people are interested in the blockchain mechanism, and many market activities are becoming more efficient through mechanisms. The mechanism design is a rapidly expanding field, but we need to realize that the blockchain can solve many problems, but it can’t solve all the problems. We must find the right way to use the blockchain, which may be combined with other cryptography techniques to make the blockchain mechanism more efficient.

Thank you!

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