Vitalik Buterin believes crypto still ‘needs time to mature’ before mainstream adoption

Vitalik Buterin, the founder of Ethereum, joined the ongoing discussion on cryptocurrency regulation over the weekend in a series of tweets. Sam Bankman-Fried, the CEO of FTX, has come under fire for his opinions regarding DeFi regulation. After expressing that it “feels unjust to allow other people get assaulted by CT but never truly push my own head out,” Buterin made the decision to express his ideas.

According to Vitalik, the cryptocurrency sector needs more time to develop before attracting more attention, therefore it shouldn't be pursuing “big institutional capital at full speed.” The creator of Ethereum argued that the market has to be “free to act” and that a delay in widespread adoption is advantageous for the sector.

“Policy that restricts how the crypto space operates internally is considerably worse than regulation that makes it more difficult for crypto ventures to gain traction in the mainstream.”

Unlike SBF, who claimed that compromises may be necessary to maintain crypto regulation free at the protocol level, Vitalik argues that rules that keep crypto fully open but slow adoption are better.

According to Vitalik, implementing KYC for front-end DeFi devices would be ineffective in repelling hackers. Hackers create programs to interface directly with smart contracts, therefore bad actors typically disregard the front end of a project.

Vitalik also discussed various legislation that could help DeFi.

(i) limits on leverage

(ii) requiring transparency about what audits, FV or other security checks were done on contract code

(iii) usage gated by knowledge-based tests instead of plutocratic net-worth minimum rules

Vitalik also proposed that regulations be compatible with “zero-knowledge proofs,” which would allow rules to be enforced without human intervention. ZKPs, he believes, are a technological innovation that may be used to better regulatory processes rather than be in conflict with them.

“ZKPs provide many new ways to meet regulatory policy goals while also protecting privacy, and we should take use of this!”

SBF commented on Vitalik's thread, saying the comments were “quite reasonable.”

The Ethereum founder elected not to comment on OFAC-approved blocks accounting for more than 60% of all blocks due to MEV-boost relays. The scenario is significant to the regulatory issue because it may be argued that Ethereum is currently regulated at the protocol level via OFAC sanctions.

Work is said to be underway to mitigate the impact of relays that only process OFAC-compliant blocks. However, the percentage of OFAC-compliant blocks has increased from 12% in September to 65% now. Some may find it surprising that Vitalik completely omitted the ongoing relay issue in a series of comments on regulatory topics. Perhaps he does not want to throw additional light on the situation before a solution is reached.